Division of Nonrenewable Resource Rents: A Model of Asymmetric Nash Competition with State Control of Heterogeneous Resources

Peter Maniloff and Dale Manning

No 2015-08, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: This paper presents a model of nonrenewable resource extraction across multiple states which engage in strategic tax competition. The model incorporates rents due to both resource scarcity and capital scarcity as well as intra-state Ricardian rents. States set taxes on nonrenewable resource production strategically to balance tax revenues and local benefits from investment conditional on other states' tax rates. A representative firm then allocates production capital across states and time to maximize profits. Generally, we find that Nash equilibrium state severance tax rates are dependent on state oil reserves, industry production capital, and costs of investment. We use a parameterized example and find that Nash equilibrium tax rates are substantially higher than observed rates. States have an incentive to unilaterally increase their own tax rates even when industry capital can relocate. Both findings hold unless policymakers place a value on domestic economic activity of more than $500,000 per oil sector job per year.

Pages: 36 pages
Date: 2015-09
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://econbus-papers.mines.edu/working-papers/wp201508.pdf First version, 2015 (application/pdf)

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:mns:wpaper:wp201508

Access Statistics for this paper

More papers in Working Papers from Colorado School of Mines, Division of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Jared Carbone (jcarbone@mines.edu).