This paper argues that cross–border human capital flows from developing countries to developed countries over the next half–century will demand a new set of policy responses from developing countries. The paper examines the forces that are making immigration policies more skill–focused, the effect of both flows (emigration) and stocks (diasporas) on the source countries, and the range of taxation instruments available to source countries to manage the consequences of those flows. This paper emphasizes the example of India, a large source country for human capital flows, and the United States, an important destination for these human capital flows and an example of how a country can tax its citizens abroad. In combination, these examples point to the significant advantage to developing countries of potential tax schemes for managing the flows and stocks of citizens who reside abroad. Finally, this paper concludes with a research agenda for the many questions raised by the prospect of large flows of skilled workers and the policy alternatives, including tax instruments, available to source countries.
Previously published as Working Paper 02–06, Weatherhead Center for International Affairs, Harvard University, September 2002.