Chapter 12 - TAXATION OF EXHAUSTIBLE RESOURCES

Summary

Introduction

Resource-based industries are typically subject to substantial taxation. In addition to conventional profits or corporation taxes, they are typically required to pay royalties, revenue taxes, excess profits taxes, and are subject as well to a variety of other forms of taxation. It is not coincidental that they are so burdened. As we have seen in earlier chapters, a large part of their profit may be pure rent, and this is obviously a tempting target for taxation. Indeed, it is well known that under certain circumstances one can tax away pure rents with no loss of allocative efficiency and, as we shall see, there are certain forms of tax which can be levied on an extractive industry without distortion. However, it is certainly not the case that all conceivable taxes on extractive industries produce no deadweight loss, and in the ensuing sections we consider the impact of some of the most widely used taxes. We also return once again to the problem of the commons, discussed in Chapter 3 and, making use of techniques and results from the last chapter, analyse the dynamic version of this problem. It is of particular interest in the present context because a resolution of this problem requires the introduction of a fairly complex dynamic tax scheme, and provides an interesting example of taxes as a corrective force, rather than as potentially distortionary revenue raisers.