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Oil Contracts, Progressive Taxation and Government Take in the Context of Uncertainty in Crude Oil Prices: The Case of Chad

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  • Guy Dabi GAB-LEYBA

    ()

  • Bertrand LAPORTE

    () (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

Concession Contracts (CC) and Production Sharing Contracts (PSC) have quite different implications for Government Take and the properties of the tax system, such as progressivity. In general, taxation via CC introduces significant distortions in activity, particularly due to the balance of royalties which tax production irrespective of the profitability of the project. So CC is normally regressive while PSC is normally progressive, because PSC taxation depends more directly on the profitability of the project. Chad has the distinction of having introduced PSC in the 2007 Chad oil code, while maintaining a royalty on production. Despite this feature, we show with a Cash Flow model and Monte Carlo simulations that the application of the 2007 oil code introduced more progressivity into taxation. This feature is particularly interesting in the current context of falling crude oil prices, because it maintains a favorable tax regime for exploration and exploitation by multinational oil companies. As a result, the Chad government should reactivate a counter-cyclical policy of oil revenue reserves when the crude oil price increases again.

Suggested Citation

  • Guy Dabi GAB-LEYBA & Bertrand LAPORTE, 2015. "Oil Contracts, Progressive Taxation and Government Take in the Context of Uncertainty in Crude Oil Prices: The Case of Chad," Working Papers 201525, CERDI.
  • Handle: RePEc:cdi:wpaper:1741
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    References listed on IDEAS

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    1. James L. Smith, 2012. "Modeling the Impact of Taxes on Petroleum Exploration and Development," IMF Working Papers 12/278, International Monetary Fund.
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    7. Blake, Andon J. & Roberts, Mark C., 2006. "Comparing petroleum fiscal regimes under oil price uncertainty," Resources Policy, Elsevier, vol. 31(2), pages 95-105, June.
    8. Malcolm P. Baker & E. Scott Mayfield & John E. Parsons, 1998. "Alternative Models of Uncertain Commodity Prices for Use with Modern Asset Pricing Methods," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 115-148.
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    JEL classification:

    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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