IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimum Commodity Taxation with a Non-Renewable Resource

  • DAUBANES, Julien
  • LASSERRE, Pierre

Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey's inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, we show that a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. The appropriate taxation rule depends on the government's revenue needs; the higher these needs, the closer the consumer price to the monopoly price. Reserves are a form of capital and royalties tax its income; our results contradict Chamley's conclusion that capital should not be taxed at all in the very long run. When reserves to be extracted are responsive to the taxation of extraction, in the absence of any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of extraction taxes and subsidies. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cireqmontreal.com/wp-content/uploads/cahiers/03-2011-cah.pdf
Download Restriction: no

Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 03-2011.

as
in new window

Length: 39 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mtl:montec:03-2011
Contact details of provider: Postal:
C.P. 6128, Succ. centre-ville, Montréal (PQ) H3C 3J7

Phone: (514) 343-6557
Fax: (514) 343-7221
Web page: http://www.cireq.umontreal.ca
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Boadway, Robin & Flatters, Frank, 1993. "The taxation of natural resources : principles and policy issues," Policy Research Working Paper Series 1210, The World Bank.
  2. Pascal Belan & Stéphane Gauthier & Guy Laroque, 2008. "Optimal grouping of commodities for indirect taxation," Post-Print hal-00731151, HAL.
  3. Burness, H. Stuart, 1976. "On the taxation of nonreplenishable natural resources," Journal of Environmental Economics and Management, Elsevier, vol. 3(4), pages 289-311, December.
  4. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  5. Fischer, Carolyn & Laxminarayan, Ramanan, 2005. "Sequential development and exploitation of an exhaustible resource: do monopoly rights promote conservation?," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 500-515, May.
  6. Alberto Petrucci, 2010. "Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy," Working Papers 2010.20, Fondazione Eni Enrico Mattei.
  7. Conrad, Robert F. & Hool, Bryce, 1981. "Resource taxation with heterogeneous quality and endogenous reserves," Journal of Public Economics, Elsevier, vol. 16(1), pages 17-33, August.
  8. Saez, Emmanuel, 2004. "Direct or indirect tax instruments for redistribution: short-run versus long-run," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 503-518, March.
  9. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, 1992. "Towards a theory of the direct-indirect tax mix," CORE Discussion Papers 1992026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Quyen, N V, 1988. "The Optimal Depletion and Exploration of a Nonrenewable Resource," Econometrica, Econometric Society, vol. 56(6), pages 1467-71, November.
  11. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Pierre Lasserre, 1985. "Discovery Costs as a Measure of Rent," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 474-83, August.
  13. Boadway, R. & Maital, S. & Prachowny, M., 1973. "Optimal tariffs, optimal taxes and public goods," Journal of Public Economics, Elsevier, vol. 2(4), pages 391-403.
  14. Carlos de Miguel & Baltasar Manzano, 2002. "Optimal Oil Taxation in a Small Open Economy," Working Papers 02-03, Asociación Española de Economía y Finanzas Internacionales.
  15. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
  16. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP 1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
  18. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
  19. Dornbusch, Rudiger, 1971. "Optimal Commodity and Trade Taxes," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1360-68, Nov.-Dec..
  20. Julien DAUBANES & Pierre LASSERRE, 2015. "Optimum Commodity Taxation with a Non-Renewable Resource," Cahiers de recherche 03-2015, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  21. Cairns, Robert D, 1990. " The Economics of Exploration for Non-renewable Resources," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 361-95.
  22. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  23. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
  24. Ross Garnaut, 2010. "Principles and Practice of Resource Rent Taxation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(4), pages 347-356, December.
  25. repec:oup:restud:v:39:y:1972:i:1:p:87-103 is not listed on IDEAS
  26. Robin Boadway & Michael Keen, 2009. "Theoretical Perspectives on Resource Tax Design," Working Papers 1206, Queen's University, Department of Economics.
  27. Gaudet, Gerard & Lasserre, Pierre, 1986. "Capital income taxation, depletion allowances, and nonrenewable resource extraction," Journal of Public Economics, Elsevier, vol. 29(2), pages 241-253, March.
  28. Emmanuel Saez, 2000. "The Desirability of Commodity Taxation under Non-Linear Income Taxation and Heterogeneous Tastes," NBER Working Papers 8029, National Bureau of Economic Research, Inc.
  29. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, vol. 56(2), pages 291-310, February.
  30. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  31. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, 04.
  32. Gaudet, Gerard & Lasserre, Pierre, 1988. "On comparing monopoly and competition in exhaustible resource exploitation," Journal of Environmental Economics and Management, Elsevier, vol. 15(4), pages 412-418, December.
  33. Sören Blomquist & Vidar Christiansen, 2004. "Taxation and Heterogeneous Preferences," CESifo Working Paper Series 1244, CESifo Group Munich.
  34. Bergstrom, Theodore C, 1982. "On Capturing Oil Rents with a National Excise Tax," American Economic Review, American Economic Association, vol. 72(1), pages 194-201, March.
  35. Lewis, Tracy R & Matthews, Steven A & Burness, H Stuart, 1979. "Monopoly and the Rate of Extraction of Exhaustible Resources: Note," American Economic Review, American Economic Association, vol. 69(1), pages 227-30, March.
  36. Partha Dasgupta & Geoffrey Heal & Joseph E. Stiflitx, 1980. "The Taxation of Exhaustible Resources," NBER Working Papers 0436, National Bureau of Economic Research, Inc.
  37. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  38. Sandmo, Agnar, 1976. "Optimal taxation : An introduction to the literature," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 37-54.
  39. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  40. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  41. A. J. Auerbach & M. Feldstein (ed.), 1985. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 1, number 1.
  42. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
  43. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  44. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, June.
  45. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
  46. Slade, Margaret E., 1988. "Grade selection under uncertainty: Least cost last and other anomalies," Journal of Environmental Economics and Management, Elsevier, vol. 15(2), pages 189-205, June.
  47. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mtl:montec:03-2011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sharon BREWER)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.