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Optimum Commodity Taxation with a Non-Renewable Resource

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  • Julien Daubanes
  • Pierre Lasserre

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Abstract

Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey’s inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, we show that a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. The appropriate taxation rule depends on the government’s revenue needs; the higher these needs, the closer the consumer price to the monopoly price. Reserves are a form of capital and royalties tax its income; our results contradict Chamley’s conclusion that capital should not be taxed at all in the very long run. When reserves to be extracted are responsive to the taxation of extraction, in the absence of any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of extraction taxes and subsidies. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities. La taxation optimale des biens cherche à lever des revenus fiscaux donnés en minimisant les distorsions. Nous réexaminons la règle de l’élasticité inverse de Ramsey en présence de ressources non-renouvelables à la Hotelling. Sous les hypothèses standard des littératures de l’extraction des ressources non-renouvelables et de la taxation optimale, une ressource non-renouvelable doit être taxée en priorité, quelles que soient l’élasticité de sa demande et l’élasticité de la demande pour les autres biens. Elle doit l’être à un taux plus élevé qu’un autre bien dont la demande est aussi élastique et, contrairement au taux s’appliquant aux biens conventionnels, ce taux doit varier dans le temps. La taxe dépend des besoins en revenus fiscaux; plus ils sont élevés, plus le prix correspondant s’approche du prix de monopole. Les réserves minérales constituent une forme de capital que taxent les royalties; Chamley a montré qu’il est néfaste de taxer le capital à très long terme. Au contraire, même lorsque les réserves à extraire dépendent du traitement fiscal de l’extraction, en l’absence de toute subvention à l’exploration, le taux optimal de la taxe obéit à la même règle d’élasticité inverse que les biens conventionnels dont l’offre est parfaitement élastique. En fait, il y a une infinité de combinaisons optimales de taxes à l’extraction et de subventions à la constitution de réserves. Si le gouvernement n’est pas en mesure de s’engager à s’abstenir de taxer les producteurs, ces derniers sont entièrement expropriés et ce sont des subventions qui doivent financer la constitution de réserves. En général, la taxe optimale de Ramsey cause une distorsion tant sur le profil d’extraction (comme lorsque les réserves sont données) que sur le volume des réserves lorsque celles-ci sont endogènes. Lorsque cette dernière distorsion est le seul effet de la taxe, elle obéit à une règle proche de celle qui s’applique aux biens conventionnels dont l’offre est élastique.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2011s-05.

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Date of creation: 01 Jan 2011
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Handle: RePEc:cir:cirwor:2011s-05

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Keywords: Optimum commodity taxation; inverse elasticity rule; non-renewable resources; hotelling resource; supply elasticity; demand elasticity; capital income taxation.; Taxation optimale des biens; règle de l’élasticité inverse; ressources non-renouvelables; ressource hotellienne; élasticité de l’offre; élasticité de la demande; taxation du capital.;

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Cited by:
  1. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Julien Daubanes & Lisa Leinert, 2012. "Optimum Tariffs and Exhaustible Resources: Theory and Evidence for Gasoline," CER-ETH Economics working paper series 12/163, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Robin Boadway & Michael Keen, 2014. "Rent Taxes and Royalties in Designing Fiscal Regimes for Non-Renewable Resources," CESifo Working Paper Series 4568, CESifo Group Munich.

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