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Rent Taxes and Royalties in Designing Fiscal Regimes for Non-Renewable Resources

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  • Robin Boadway
  • Michael Keen

Abstract

A fundamental issues in designing any fiscal regime for non-renewable resources is the balance between rent taxes and royalties. This paper reviews the core issues that arise, in terms of both efficient rent extraction and correcting various market failures. Issues of asymmetric information, for instance, can rationalize using both instruments. The paper also shows that, even though they effectively involve the choice of distinct parameters at several dates, rent taxes are not subject to the time consistency problem that is central to the extractive industries, but royalties are (although time consistent royalty policy is efficient conditional on initial resource stocks).

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4568.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4568

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Keywords: rent tax; royalties; resource taxation;

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  1. Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CER-ETH Economics working paper series 11/151, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
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  5. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
  6. Venables, Anthony J., 2010. "Resource rents; when to spend and how to save," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7875, C.E.P.R. Discussion Papers.
  7. Steve Bond & Michael Devereux, 1993. "On the design of a neutral business tax under uncertainty," IFS Working Papers, Institute for Fiscal Studies W93/01, Institute for Fiscal Studies.
  8. Auerbach, Alan J, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(3), pages 433-46, August.
  9. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
  10. Ruud A. De Mooij, 2012. "Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 33(4), pages 489-512, December.
  11. Colin Busby & Benjamin Dachis & Bev Dahlby, 2011. "Rethinking royalty Rates: Why There Is a Better Way to Tax Oil and Gas Development," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 333, September.
  12. Garnaut, Ross & Clunies-Ross, Anthony, 1983. "Taxation of Mineral Rents," OUP Catalogue, Oxford University Press, Oxford University Press, edition 1, number 9780198284543, October.
  13. Bond, Stephen R. & Devereux, Michael P., 2003. "Generalised R-based and S-based taxes under uncertainty," Journal of Public Economics, Elsevier, Elsevier, vol. 87(5-6), pages 1291-1311, May.
  14. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
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  15. Conrad, Robert F. & Hool, Bryce, 1981. "Resource taxation with heterogeneous quality and endogenous reserves," Journal of Public Economics, Elsevier, Elsevier, vol. 16(1), pages 17-33, August.
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