The Taxation of Exhaustible Resources

37 Pages Posted: 16 Jul 2004 Last revised: 12 Sep 2010

See all articles by Partha Dasgupta

Partha Dasgupta

University of Cambridge - Faculty of Economics and Politics; The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics

Geoffrey M. Heal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: 1980

Abstract

This paper analyzes the effect of taxation on the intertemporal allocation of an exhaustible resource. A general framework within which a large variety of taxes can be analyzed is developed and then applied to a number of specific taxes. It is shown that there exists a pattern of taxation which can generate essentially any desired pattern of resource usage. Many tax policies, however, have effects which are markedly different both from the effects that these policies would have in the case of produced commodities-and from those which they are designed (or widely thought) to have. For instance, if extraction costs are zero, a depletion allowance at a constant rate (widely thought to encourage the extraction of resources) has absolutely no effect; its gradual removal (usually thought to be preferable to a sudden removal) leads to faster rates of depletion (and lower prices) now, but higher prices in the future; which its sudden and unanticipated removal has absolutely no distortionary effect on the pattern of extraction. More generally, it is shown that the effects of tax structure on the patterns of extraction are critically dependent on expectations concerning future taxation. (The changes in tax structure which have occurred in the past fifty years are of the kind that, if they were anticipated, (or if similar further changes are expected to occur in the future) lead to excessively fast exploitation of natural resources. However, if it is believed that current tax policies (including rates) will persist indefinitely, the current tax structure would lead to excessive conservationism. Thus, whether in fact current tax policies have lead to excessive conservationism is a moot question.

Suggested Citation

Dasgupta, Partha and Heal, Geoffrey M. and Stiglitz, Joseph E., The Taxation of Exhaustible Resources (1980). NBER Working Paper No. w0436. Available at SSRN: https://ssrn.com/abstract=421764

Partha Dasgupta

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics

The Royal Swedish Academy of Sciences
P.O. Box 50005
S-104 05 Stockholm, SE-104 05
SWEDEN

Geoffrey M. Heal (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-6459 (Phone)
212-316-9219 (Fax)

HOME PAGE: http://www.gsb.columbia.edu/faculty/gheal/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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