EconPapers    
Economics at your fingertips  
 

Distortions Created by Taxes Which are Options on Value Creation: The Australian Resources Rent Tax Proposal

Ray Ball (ray.ball@chicagobooth.edu) and John Bowers
Additional contact information
John Bowers: Australian Graduate School of Management, University of New South Wales.

Australian Journal of Management, 1983, vol. 8, issue 2, 1-14

Abstract: The proposed tax on economic rents earned from Australian resources investments is examined from the viewpoint of the economist's neutrality criterion. Proposed by Garnaut and Clunies-Ross (1975, 1977), the Resources Rent Tax is alleged to be neutral in that it is alleged not to inhibit or distort investment behaviour. We show that the proposed tax effectively is a call option on the value created by every individual resources project. By adapting the Black-Scholes (1973) call option valuation formula, we then demonstrate that the effective incidence of the tax depends upon each project's risks, life and viability. Hence, under conditions of risk, the Resources Rent Tax fails the neutrality criterion.

Keywords: OPTIONS; TAXES; RESOURCES RENT TAX (search for similar items in EconPapers)
Date: 1983
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/031289628300800201 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:8:y:1983:i:2:p:1-14

DOI: 10.1177/031289628300800201

Access Statistics for this article

More articles in Australian Journal of Management from Australian School of Business
Bibliographic data for series maintained by SAGE Publications (sagediscovery@sagepub.com).

 
Page updated 2024-12-28
Handle: RePEc:sae:ausman:v:8:y:1983:i:2:p:1-14