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Modeling the response to exogenous shocks: The capital uplift rate in petroleum taxation

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  • Berg, Magnus
  • Bøhren, Øyvind
  • Vassnes, Erik

Abstract

We show how a recent drop in the Norwegian capital uplift rate by two percentage points changes optimal field design and reduces field value for shareholders. Although optimal design changes considerably and value drops by 12%, the ability to reoptimize design after the shock is worth only 1.5% of field value. This evidence suggests that large behavioral effects of a shock do not necessarily imply large value effects, making it less important to always account for the taxpayers' response. The valuation error in such cases may be moderate if one instead uses the simplifying and widespread assumption of unresponsive taxpayers.

Suggested Citation

  • Berg, Magnus & Bøhren, Øyvind & Vassnes, Erik, 2018. "Modeling the response to exogenous shocks: The capital uplift rate in petroleum taxation," Energy Economics, Elsevier, vol. 69(C), pages 442-455.
  • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:442-455
    DOI: 10.1016/j.eneco.2017.12.010
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    Cited by:

    1. Jia-Yue Huang & Yun-Fei Cao & Hui-Ling Zhou & Hong Cao & Bao-Jun Tang & Nan Wang, 2018. "Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach," Energies, MDPI, Open Access Journal, vol. 11(11), pages 1-22, October.
    2. Lars Lindholt, 2019. "Effects of higher required rates of return on the tax take in an oil province," Discussion Papers 892, Statistics Norway, Research Department.

    More about this item

    Keywords

    Endogeneity; Responsive; Unresponsive; Tax shock; Exogenous; Petroleum taxation; Uplift;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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