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Petroleum taxation and investment behaviour

Author

Listed:
  • Osmundsen, Petter

    (UiS)

  • Emhjellen, Magne

    (Petoro)

  • Johnsen, Thore

    (NHH)

  • Kemp, Alexander

    (University of Aberdeen)

  • Riis, Christian

Abstract

Petroleum administration can be regarded as a principal-agent problem. The government allocates exploration and production rights to petroleum companies on behalf of the population. The government is the principal and the companies are agents. With the aim of capturing revenue for the state, the government devises a petroleum tax system which takes account of the investment decisions made by the companies, while acknowledging for the fact that the companies may report strategically to the government. An important issue is how tax deductions are to be treated in investment analysis. A discrepancy arises here between assumptions made in some areas of tax theory and the actual investment analyses conducted by the companies. Tax theory has given rise to discussion and controversial tax proposals for the petroleum sector in Norway, Denmark and Australia. It led, for example, to reductions in tax-related depreciation for the Norwegian petroleum industry in May 2013. The article reviews this tax debate and analyses the implications of basing tax design on counter-factual investment behaviour.

Suggested Citation

  • Osmundsen, Petter & Emhjellen, Magne & Johnsen, Thore & Kemp, Alexander & Riis, Christian, 2014. "Petroleum taxation and investment behaviour," UiS Working Papers in Economics and Finance 2014/17, University of Stavanger.
    • Handle: RePEc:hhs:stavef:2014_017
    as

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    References listed on IDEAS

    as
    1. David G. Laughton, 1998. "The Potential for Use of Modern Asset Pricing Methods for Upstream Petroleum Project Evaluation: Concluding Remarks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 149-153.
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    5. Magne Emhjellen & Petter Osmundsen, 2011. "Separate cash flow valuation – applications to investment decisions and tax design," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(1), pages 43-63.
    6. David G. Laughton, 1998. "The Potential for Use of Modern Asset Pricing Methods for Upstream Petroleum Project Evaluation: Introductory Remarks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    7. Garnaut, Ross & Clunies Ross, Anthony, 1975. "Uncertainty, Risk Aversion and the Taxing of Natural Resource Projects," Economic Journal, Royal Economic Society, vol. 85(338), pages 272-287, June.
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    More about this item

    Keywords

    petroleum taxation; tax design; valuation; corporate behaviour;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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