The Irreversible Output Effects of Severance Taxes on Oil

Mark Brandly and A. H. Barnett
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Mark Brandly: Ball State University
A. H. Barnett: Auburn University

Public Finance Review, 1999, vol. 27, issue 5, 511-530

Abstract: This article explains why the output effect of a severance tax on oil is not generally reversed when the tax is removed. It is shown that this severance-tax-induced irreversibility in supply has important implications for both the interpretation and estimation of the supply of oil. Specifically, severance taxes cause a path dependence in supply that makes the concept of a supply curve for oil ambiguous. The authors provide estimates for the case of Kansas that indicate that the magnitude of the irreversible effects of severance taxes is large.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:27:y:1999:i:5:p:511-530

DOI: 10.1177/109114219902700503

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