Taxation, depletion, and welfare: A simulation study of the US petroleum resource

Journal Article · Mon Mar 01 04:00:00 EST 1993 · Journal of Environmental Economics and Management; (United States)

DOI:https://doi.org/10.1006/jeem.1993.1011· OSTI ID:6695933

Deacon, R T ^[1]

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1. Univ. of California, Santa Barbara (United States)

Exhaustible resources in the United States are subject to taxes on property value, production, and corporate income. As applied in practice each tax can cause high-grading - the elimination of incentives to explore, develop, and produce marginal resources - and each can tilt the time path of production toward the present or the future. The potential for such tax-induced distortions has been shown in the theoretical literature. Due to the dynamic nature of resource exploitation and the resulting complexity of models developed to study it, however, purely theoretical exercises have been unable to provide detailed results of a sort that could help guide tax policy. The present paper develops a simulation model of the US petroleum resource and uses it to study the effects of taxation on exploration and production. The model is partial equilibrium in scope and views the industry as a present value maximizing representative firm. Given expectations on the future time path of price, and a function that relates reserve additions to exploratory effort, the industry chooses time paths for exploration and production. Parameters of relevant functions are estimated with data for US petroleum operations in the onshore region of the lower 48 states. The simulated outcomes indicate that property and production (severance) taxes cause substantial deadweight losses, a tax on corporate income from extraction imposes a very small deadweight loss, and the property tax significantly biases utilization of the resource away from the future and toward the present. 33 refs., 6 figs., 3 tabs.

• OSTI ID: 6695933
• Journal Information: Journal of Environmental Economics and Management; (United States), Journal Name: Journal of Environmental Economics and Management; (United States) Vol. 24:2; ISSN JEEMDI; ISSN 0095-0696
• 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
99 GENERAL AND MISCELLANEOUS
990200 -- Mathematics & Computers
ECONOMIC IMPACT
ENERGY SOURCES
EQUILIBRIUM
EXPLOITATION
EXPLORATION
EXTRACTION
FINANCIAL INCENTIVES
FOSSIL FUELS
FUELS
INCOME
INDUSTRY
LEGAL INCENTIVES
MANAGEMENT
MATHEMATICAL MODELS
PETROLEUM
PETROLEUM INDUSTRY
PRODUCTION
RESOURCE DEPLETION
RESOURCE DEVELOPMENT
RESOURCE MANAGEMENT
RESOURCE POTENTIAL
SEPARATION PROCESSES
SIMULATION
TAXES