Effects of the Crude Oil Windfall Profits Tax

Thesis/Dissertation · Fri Jan 01 04:00:00 EST 1982

OSTI ID:5458174

Lacko, J M

The effect of the Crude Oil Windfall Profits Tax on production and investment in the oil industry is examined using a dynamic model within the framework of natural-resource economics. The effect of the tax is analyzed theoretically under a variety of asumptions, and empirically using computer simulation. The tax is first analyzed with a model which assumes a competitive industry, constant marginal costs, a permanent tax, and no investment. This model shows that the tax will induce a faster extraction path when the base price (the revenue per barrel not subject to taxation) is set greater than marginal cost, a condition which certainly holds for the present tax. The faster extraction path implies increased production and lower prices in early years. In the section which assumes a monopolistic industry, the results of the basic model are shown to still hold. It is also shown that the Windfall Profits Tax can be used to induce the competitive outcome on the monopolist. In other theoretical sections, it is shown that the results become ambiguous. Finally, computer simulation is used to estimate the effects of the tax on the American oil industry, using a model which includes exploration for new reserves and rising extraction costs as reserves are depleted. The simulation results support the conclusion obtained in the basic model: the tax encourages faster extraction of oil.

• OSTI ID: 5458174
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700* -- Petroleum-- Economics
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
294002 -- Energy Planning & Policy-- Petroleum
ECONOMIC IMPACT
INDUSTRY
INVESTMENT
PETROLEUM INDUSTRY
PRODUCTION
RESOURCE DEPLETION
TAXES
WINDFALL PROFITS TAX