Income Contingent Collection of a ‘Brain Drain Tax’: Theory, Policy and Empirical Potential

The purpose of this study is to explore income contingent loans as a mechanism for collecting a “Brain Drain Tax” as proposed by Bhagwati. As originally proposed, developing countries would receive taxes levied on emigrants from developing countries to recompense them for the losses imposed by the brain drain. Income continent loans provide a potential method of collection as a notional debt could be imposed at the time of immigration and paid off over time though income tax levies. Using Australia as a case study, we explore the potential revenue that would be collected through the Higher Education Contribution Scheme (HECS) from a notional debt of $5000 (Australian) per skilled immigrant. Using census data we estimate around 25,000 skill immigrants per year would incur a notional HECS debit of $125 million (Australian) with around half being repaid under current income threshold arrangements. Extending the tax to unskilled migrants would more than double the revenue. The study finally highlights several administrative and legal issues that would need to be resolved, including options for remitting funds back to developing countries.