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Resource rent taxes and sustainable development: A Mongolian case study

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  • Thampapillai, Dodo J.
  • Hansen, Jan
  • Bolat, Aigerim

Abstract

Economies rich in mineral resources, need to evaluate the merits of investing rents earned from resource extraction in other income generating activities to sustain the flow of income. It is hence important to estimate and assess the potential uses of the resource rent tax (RRT). This paper illustrates how the reinvestment of the RRT and other government revenue from mining can reduce the depreciation of the mine. This illustration is made with reference to a coal deposit in the Tavan-Tolgoi region of Mongolia. The paper also illustrates impact of mining on the macroeconomic performance of Mongolia. Standard macroeconomic frameworks that ignore the depreciation of mineral assets overstate economic performance. The paper also reviews the political issues and constraints that surround the implementation of the RRT. One option canvassed here is the granting of qualified custodial rights of the RRT to the mining firm. Such qualified rights are pertinent given that the RRT is legally the income owed to the State and investments in ventures such as human capital development can yield returns as high as 10% per annum. This study illustrates that even an investment option yielding an annual 3% return can make a significant difference.

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  • Thampapillai, Dodo J. & Hansen, Jan & Bolat, Aigerim, 2014. "Resource rent taxes and sustainable development: A Mongolian case study," Energy Policy, Elsevier, vol. 71(C), pages 169-179.
    • Handle: RePEc:eee:enepol:v:71:y:2014:i:c:p:169-179
    DOI: 10.1016/j.enpol.2014.04.011
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    References listed on IDEAS

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    1. John Hartwick, 1977. "Intergenerational Equity and the Investment of Rents from Exhaustible Resources in a Two Sector Model," Working Paper 281, Economics Department, Queen's University.
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    Cited by:

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    4. Leiva, Benjamin, 2020. "Natural resource rent allocation, government quality, and concession design: The case of copper in Chile," Resources Policy, Elsevier, vol. 68(C).
    5. Yang, Honglin & Wang, Lin & Tian, Lixin, 2015. "Evolution of competition in energy alternative pathway and the influence of energy policy on economic growth," Energy, Elsevier, vol. 88(C), pages 223-233.
    6. Dodo J. Thampapillai & Yvonne Jie Chen & Christopher Ivo Bacani & Omer Baris, 2016. "New Estimates of Factor Income Shares in Central Asian Economies," Economic Papers, The Economic Society of Australia, vol. 35(3), pages 282-291, September.
    7. Ge, Jianping & Lei, Yalin, 2018. "Resource tax on rare earths in China: Policy evolution and market responses," Resources Policy, Elsevier, vol. 59(C), pages 291-297.
    8. Ma, Qiang & Li, Sa & Aslam, Misbah & Ali, Naveed & Alamri, Ahmad Mohammed, 2023. "Extraction of natural resources and sustainable renewable energy: COP26 target in the context of financial inclusion," Resources Policy, Elsevier, vol. 82(C).

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