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The Irreversible Output Effects of Severance Taxes on Oil

Author

Listed:
  • Mark Brandly

    (Ball State University)

  • A. H. Barnett

    (Auburn University)

Abstract

This article explains why the output effect of a severance tax on oil is not generally reversed when the tax is removed. It is shown that this severance-tax-induced irreversibility in supply has important implications for both the interpretation and estimation of the supply of oil. Specifically, severance taxes cause a path dependence in supply that makes the concept of a supply curve for oil ambiguous. The authors provide estimates for the case of Kansas that indicate that the magnitude of the irreversible effects of severance taxes is large.

Suggested Citation

  • Mark Brandly & A. H. Barnett, 1999. "The Irreversible Output Effects of Severance Taxes on Oil," Public Finance Review, , vol. 27(5), pages 511-530, September.
    • Handle: RePEc:sae:pubfin:v:27:y:1999:i:5:p:511-530
    DOI: 10.1177/109114219902700503
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    References listed on IDEAS

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    1. James Prescott & Tim R. Smith, 1985. "The use of severance taxes in Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, vol. 70(Apr), pages 3-16.
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