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Income equivalence and a proposed resource rent charge

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  • Alexeev, Michael
  • Conrad, Robert F.

Abstract

We demonstrate the equivalence of various income-based charges when perfect certainty prevails, as well as deviations from equivalence under uncertainty. Some of these equivalences are known but the derivations of others, such as cases for two types of free equity, are not. These equivalences lay the foundation for a proposed Accrued Rent Charge (ARC) as an alternative to Resource Rent Taxes (RRT), both as proposed and implemented. We argue that the ARC may be preferred to the RRT because the timing of returns to investors (owners of reproducible capital) and owners of natural assets coincide. That is, returns accrue to owners of natural assets earlier in time with the ARC relative to the RRT. In addition, we argue that, while both charges are inefficient when there is uncertainty, the ARC may be relatively more administratively and economically efficient. Finally, we use simulations to compare the ARC to the RRT and to standard income charges and discuss the results.

Suggested Citation

  • Alexeev, Michael & Conrad, Robert F., 2017. "Income equivalence and a proposed resource rent charge," Energy Economics, Elsevier, vol. 66(C), pages 349-359.
  • Handle: RePEc:eee:eneeco:v:66:y:2017:i:c:p:349-359
    DOI: 10.1016/j.eneco.2017.07.003
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    References listed on IDEAS

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    1. Garnaut, Ross & Clunies-Ross, Anthony, 1983. "Taxation of Mineral Rents," OUP Catalogue, Oxford University Press, number 9780198284543.
    2. Adelman, M A, 1990. "Mineral Depletion, with Special Reference to Petroleum," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 1-10, February.
    3. James Otto & Craig Andrews & Fred Cawood & Michael Doggett & Pietro Guj & Frank Stermole & John Stermole & John Tilton, 2006. "Mining Royalties : A Global Study of Their Impact on Investors, Government, and Civil Society," World Bank Publications, The World Bank, number 7105, August.
    4. Hayne E. Leland, 1978. "Optimal Risk Sharing and the Leasing of Natural Resources, with Application to Oil and Gas Leasing on the OCS," The Quarterly Journal of Economics, Oxford University Press, vol. 92(3), pages 413-437.
    5. James Otto & Craig Andrews & Fred Cawood & Michael Doggett & Pietro Guj & Frank Stermole & John Stermole & John Tilton, 2006. "Mining Royalties : A Global Study of Their Impact on Investors, Government, and Civil Society, Appendixes," World Bank Publications, The World Bank, number 7136, August.
    6. Diderik Lund, 2009. "Rent Taxation for Nonrenewable Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 287-307, September.
    7. Conrad, Robert F. & Hool, Bryce, 1981. "Resource taxation with heterogeneous quality and endogenous reserves," Journal of Public Economics, Elsevier, vol. 16(1), pages 17-33, August.
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    More about this item

    Keywords

    Natural resource rents; Natural resource taxation;

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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