Spatially variable taxation and resource extraction: The impact of state oil taxes on drilling in the US

Jason Brown, Peter Maniloff and Dale Manning

Journal of Environmental Economics and Management, 2020, vol. 103, issue C

Abstract: We estimate the responsiveness of nonrenewable resource firms to taxes on output using spatially explicit data from the oil sector in the United States. Using a model of resource firm capital allocation over space, we show that responses to spatially-varying taxes differ from responses to equivalent changes in the common output price. A larger response to tax rates occurs because the tax change only affects the returns to drilling in a single state, whereas a price change affects both the returns to drilling in a state and the opportunity cost of not drilling in other states. Econometrically, we estimate the effect of severance taxes on oil drilling. We find that the response to a one dollar increase in tax per unit of production has an effect at least eight times as large as the effect of an equivalent decrease in output price. The tax response is inelastic, implying that an increase in state tax rate would increase revenue. We do not find evidence of spillovers between states in the local areas near state borders.

Keywords: Severance tax; Drilling; Supply elasticity (search for similar items in EconPapers)
JEL-codes: Q32 Q48 R51 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:103:y:2020:i:c:s0095069620300772

DOI: 10.1016/j.jeem.2020.102354

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