Taxes and U.S. Oil Production: Evidence from California and the Windfall Profit Tax

42 Pages Posted: 5 Feb 2013 Last revised: 11 Mar 2015

See all articles by Nirupama Rao

Nirupama Rao

University of Michigan, Stephen M. Ross School of Business

Date Written: January 1, 2013

Abstract

Rapid oil price increases frequently bring calls for special oil industry taxes. This paper uses new well-level production data and price variation induced by federal oil taxes and price controls to estimate how taxes affect production. Theory suggests temporary taxes create strong incentives for retiming productioneven well shutting. Empirical estimates suggest little shut-in in response to taxes, but substantial production retiming with an estimated elasticity between 0.208 and 0.261. The estimates are used to calibrate a simple model of the efficiency cost of tax-induced distortions, implying that a 15% tax reduces social efficiency by between 3% and 25% of the revenue raised.

Keywords: Taxes, Energy, Oil, Supply Elasticity

JEL Classification: H23, H25, Q41, Q48

Suggested Citation

Rao, Nirupama, Taxes and U.S. Oil Production: Evidence from California and the Windfall Profit Tax (January 1, 2013). NYU Wagner Research Paper No. 2211681. Available at SSRN: https://ssrn.com/abstract=2211681 or http://dx.doi.org/10.2139/ssrn.2211681

Nirupama Rao (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

Ann Arbor, MI
United States

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