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The Neutrality of the Resource Rent Tax

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  • ROSS GARNAUT
  • ANTHONY CLUNIES ROSS

Abstract

Although less distorting than conventional royalties and income tax, the resource rent tax is strictly neutral only if the interest rate at which losses are carried forward relates correctly to the discount rate employed by investors in project evaluation. Thus it is possible in principle to design a resource rent tax that is strictly neutral only if parameters are set independently for each minerals investment. Such attempts to tailor parameters to each investment would make great demands on information and would increase business uncertainty. The paper suggests expedients to reduce the costs of non‐neutrality when resource rent tax is applied with parameters that are of general application and discusses their use in Australia.

Suggested Citation

  • Ross Garnaut & Anthony Clunies Ross, 1979. "The Neutrality of the Resource Rent Tax," The Economic Record, The Economic Society of Australia, vol. 55(3), pages 193-201, September.
    • Handle: RePEc:bla:ecorec:v:55:y:1979:i:3:p:193-201
    DOI: 10.1111/j.1475-4932.1979.tb02221.x
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    References listed on IDEAS

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    1. Peter L. Swan, 1976. "Income Taxes, Profit Taxes and Neutrality of Optimizing Decisions," The Economic Record, The Economic Society of Australia, vol. 52(2), pages 166-181, June.
    2. Sumner, M T, 1978. "Progressive Taxation of Natural Resource Rents," The Manchester School of Economic & Social Studies, University of Manchester, vol. 46(1), pages 1-16, March.
    3. 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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    1. Fraser, Rob & Kingwell, Ross, 1997. "Can expected tax revenue be increased by an investment-preserving switch from ad valorem royalties to a resource rent tax?," Resources Policy, Elsevier, vol. 23(3), pages 103-108, September.
    2. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).
    3. Castillo, Emilio, 2021. "The impacts of profit-based royalties on early-stage mineral exploration," Resources Policy, Elsevier, vol. 73(C).
    4. Osmel Manzano & Francisco Monaldi, 2008. "The Political Economy of Oil Production in Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2008), pages 59-103.
    5. Smith, B., 1999. "The Impossibility of a Neutral Resource Rent Tax," ANU Working Papers in Economics and Econometrics 1999-380, Australian National University, College of Business and Economics, School of Economics.
    6. Amos James Ibrahim-Shwilima & Hideki Konishi, 2014. "The Impact of Tax Concessions on Extraction of Non-renewable Resources:An Application to Gold Mining in Tanzania," Working Papers 1403, Waseda University, Faculty of Political Science and Economics.
    7. Fraser, Rob W., 1999. "The state of resource taxation in Australia: 'An inexcusable folly for the nation'?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(3), pages 1-20, September.
    8. Fraser, Rob W., 1998. "Lease allocation systems, risk aversion and the resource rent tax," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 42(2), pages 1-16.
    9. Fraser, Rob W., 1999. "An analysis of the Western Australian gold royalty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(01), pages 1-16, March.
    10. Bertrand Laporte & Celine de Quatrebarbes & Yannick Bouterige, 2022. "Tax design and rent sharing in mining sector: Evidence from African gold‐producing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(6), pages 1176-1196, August.
    11. Yıldız, Taşkın Deniz, 2022. "How can the state rights be calculated by considering a high share of state right in mining operating costs in Turkey?," Resources Policy, Elsevier, vol. 75(C).
    12. Sunnevag, Kjell J., 2000. "Designing auctions for offshore petroleum lease allocation," Resources Policy, Elsevier, vol. 26(1), pages 3-16, March.
    13. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

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