The international migration of the highly skilled Filipino labor: A theoretical consideration of the welfare and macroeconomic impacts of taxes on remittances

• Main Author: Rivera, John Paolo Rosales
• Format: text
• Language: English
• Published: Animo Repository 2011
• Subjects: Emigrant remittances—Philippines; Brain drain—Philippines; Foreign workers, Filipino—Taxation; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_doctoral/1346; https://animorepository.dlsu.edu.ph/context/etd_doctoral/article/2347/viewcontent/CDTG005058_P.pdf
• Institution: De La Salle University

Labor migration has sizable and non-negligible economic impacts specifically to labor-sending countries such as the Philippines. In the midst of temporary labor migration, any labor-sending economy can experience brain drain, which can alter the economy’s production structure and redirect the country’s comparative advantage. The exodus of highly trained professionals, without replacement, will lead to brain drain in a country with limited access to quality higher education especially if the education costs of these professionals have been subsidized by the state hence, a substantial loss to society is incurred. Likewise, the training costs of replacements can be reasonably substantial and may cause the reduction of the productivity of workers left behind. Thus, this study developed an Overlapping Generations (OLG) Model on the Philippine context that will tackle the management of skilled labor migration and assessing the welfare issues it entails. By incorporating how a tax on the income of skilled Filipino migrant workers abroad, as proposed by Bhagwati (1976), affects microeconomic welfare and the capital accumulation of the macroeconomy, this study provides an insight on the efficacy of its implementation. Simulation results have shown that imposing the brain drain tax can enable the economy to achieve a higher steady state capital stock and steady state aggregate income paths at the expense of lower future consumption with habit formation on the condition that the government will not spend all the revenues from the brain drain tax on one generation. On the contrary, spending the revenues from the brain drain tax on a single generation will just oscillate the economy to higher and lower steady states every after generation that is, making the economy return to its initial steady state without the brain drain tax every after generation. Thus, for social planners, it is a toss between the welfare of the households or macroeconomic growth and the welfare of the current generation or the succeeding