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Optimal taxation of a monopolistic extractor: Are subsidies necessary?

  • Daubanes, Julien

This note reconsiders the optimal taxation problem when extraction of an exhaustible resource is monopolistic. In a standard model, I explicitly characterize and examine all the efficiency-inducing paths of taxes/subsidies on the resource. Consistently with the literature, there is a family of such optimal paths. In contrast with Im (2002), it may not be necessary to subsidize the monopoly at any date: within the family of optimal paths of taxes/subsidies, there may exist some paths along which the regulator raises positive revenues at all dates. This illustrates how the static trade-off between inducing efficiency and raising tax revenues in the presence of market power is relaxed under exhaustibility.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 3 (May)
Pages: 399-403

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:399-403
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  15. Karp, Larry & Livernois, John, 1992. "On efficiency-inducing taxation for a non-renewable resource monopolist," Journal of Public Economics, Elsevier, vol. 49(2), pages 219-239, November.
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