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Taxing a Natural Resource with a Minimum Revenue Requirement

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  • Patrick Gonzalez

Abstract

The State may tax the extraction of a public natural resource in different ways. I consider the relative performances of a fixed fee, an ad valorem tax and a rent tax when the State must receive a minimal revenue for exploitation to take place. Taxing the resource may lower the probability that a firm will extract the resource. I show that the performance of each tax depends on the expected value of the resource: when it is high, the rent tax brings more revenue to the State; when it is low, the fixed fee is efficient while the rent tax does poorly. For an intermediate value, the ad valorem tax may bring the highest expected revenues among the three although it is always dominated by an hybrid tax that combines the latter two.

Suggested Citation

  • Patrick Gonzalez, 2013. "Taxing a Natural Resource with a Minimum Revenue Requirement," Cahiers de recherche CREATE 2013-6, CREATE.
    • Handle: RePEc:lvl:creacr:2013-6
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    File URL: https://www.create.ulaval.ca/sites/create.ulaval.ca/files/Publications/create2013-6.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Rent; Royalties; Mining; Extraction Industry;
    All these keywords.

    JEL classification:

    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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