Based on a welfare-maximization model of skilled migration where education generates a positive externality, I examine whether the early view regarding brain drain’s (BD) negative impact on source countries – and its associated Bhagwati tax ( \(\:t\) ) – is compatible with the recent more optimistic BD-induced brain gain view. I derive BD’s impact on education and welfare, the optimal education subsidy ( \(\:s\) ), and a combination of \(\:s\) and \(\:t\) , when residents’ (emigrants’) weight in the government’s objective function is ( \(\:1-\beta\:\) ), where \(\:\beta\:\:\in\:\left(0,\:1\right)\) . I find that: i) education, welfare and \(\:s\) are higher (lower) under an open than under a closed economy for \(\:1-\beta\:\) larger (smaller) than the ratio of source-country to host-country income; ii) \(\:s\) and \(\:t\) are policy complements, i.e., given the model’s parameters (such as \(\:\beta\:\) ), the impact of an increase in \(\:s\) is also obtainable with an increase in \(\:t\) ; and iii) \(\:s\) ( \(\:t\) ) increases (declines) with \(\:1-\beta\:\) . Two implications and a proposal are: a) The early literature, where \(\:t\) was considered, abstracted from migrants’ welfare (i.e., the \(\:1-\beta\:=0\) case), which is precisely the case where optimal tax \(\:t\) is largest; b) A second policy instrument is beneficial especially when constraints exist on changes in the other one. Assuming a low emigrants’ value for the government, opening up the economy implies a lower education subsidy, so raising the Bhagwati tax \(\:t\) should be beneficial if, as is typically the case, education is viewed as a right and parents’ and teachers’ organizations as well as the education ministry and bureaucracy make it politically difficult if not impossible to reduce the education subsidy; c) Proposals for collecting the Bhagwati tax is presented.
