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

Journal Article · Mon Mar 01 00:00:00 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), Vol. 24:2; ISSN 0095-0696
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
29 ENERGY PLANNING
POLICY AND ECONOMY
99 GENERAL AND MISCELLANEOUS//MATHEMATICS, COMPUTING, AND INFORMATION SCIENCE
PETROLEUM
RESOURCE MANAGEMENT
PETROLEUM INDUSTRY
MATHEMATICAL MODELS
TAXES
RESOURCE DEVELOPMENT
FINANCIAL INCENTIVES
ECONOMIC IMPACT
EQUILIBRIUM
EXPLOITATION
EXPLORATION
EXTRACTION
INCOME
LEGAL INCENTIVES
PRODUCTION
RESOURCE DEPLETION
RESOURCE POTENTIAL
SIMULATION
ENERGY SOURCES
FOSSIL FUELS
FUELS
INDUSTRY
MANAGEMENT
SEPARATION PROCESSES
020700* - Petroleum- Economics
Industrial
& Business Aspects
290200 - Energy Planning & Policy- Economics & Sociology
990200 - Mathematics & Computers