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Profit taxation and royalties: evidence from gold mines in Sub-Saharan Africa

Author

Listed:
  • Luisito Bertinelli

    (CREA, Université du Luxembourg)

  • Arnaud Bourgain

    (CREA, Université du Luxembourg)

  • Skerdilajda Zanaj

    (CREA, Université du Luxembourg)

Abstract

In this paper, we analyze theoretically and empirically the effects of tax changes on firms’ profits in extractive industries. In the theoretical part, we assume a country that levies a profit tax and a royalty on the profits of extractive firms to maximize its tax revenues. The mining companies may reduce their taxable income by cost manipulation. By analyzing the optimal choice of the government and of the firms, we first establish the optimal tax policy and then we investigate the impact of the optimal fiscal policy on firms’ profits. In the empirical part of the paper, we estimate the effect of the profit tax and royalty on the extracting firms’ profit in African countries during the period spanning from 2007 to 2018. We use the Mining Intelligence database to constitute a panel of annual individual data on 363 gold mines located in 21 Sub-Saharan countries. We obtain an inverse relationship between the tax rate change of the two tax instruments and the profit of the firms.

Suggested Citation

  • Luisito Bertinelli & Arnaud Bourgain & Skerdilajda Zanaj, 2019. "Profit taxation and royalties: evidence from gold mines in Sub-Saharan Africa," DEM Discussion Paper Series 19-15, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:19-15
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    File URL: https://hdl.handle.net/10993/44012
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    References listed on IDEAS

    as
    1. Smith, James L., 2013. "Issues in extractive resource taxation: A review of research methods and models," Resources Policy, Elsevier, vol. 38(3), pages 320-331.
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    3. Ousman Gajigo & Emelly Mutambatsere & Guirane Samba Ndiaye, 2012. "Working Paper 147 - Gold Mining in Africa-Maximizing Economic Returns for Countries," Working Paper Series 378, African Development Bank.
    4. Auerbach,Alan J. & Hines, Jr.,James R. & Slemrod,Joel (ed.), 2007. "Taxing Corporate Income in the 21st Century," Cambridge Books, Cambridge University Press, number 9780521870221, October.
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    6. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 118-150, March.
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    More about this item

    Keywords

    Resource countries; Resource taxation; Royalties; Cost misreporting; Extractive industries.;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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