The Impacts of Profit-Based Royalties in Early-Stage Mineral Exploration

Emilio Castillo ()

No 2020-05, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: The impact of public policy on the mineral industries is difficult to measure due to little short-term responsiveness to policy changes by companies already investing in known fixed deposits. Nevertheless, early-stage (or grassroots) exploration has been suggested to provide early signals. Among mineral policies, taxation has received plenty of attention in theoretical analysis and simulation studies, but little empirical evaluation. Royalties should affect early-stage exploration by decreasing the expected value of a discovered deposit. The empirical approach here uses a difference-in-difference strategy, analyzing the Chilean mining royalty changes of 2004 and 2010. The first tax change is argued to be exogenous as it happened due to the political cycle and in line with a major increase in commodity prices, and the later modification occurred as a result of a major earthquake. Results indicate a surprisingly small average impact on grassroots exploration. However, the effect is heterogeneous as larger companies increased their budget as opposed to junior companies. The absence of geographical spillovers not only supports these estimated effects but also suggests that neighboring countries do not need to engage in harmful tax competition.

Keywords: mineral policy; mineral exploration; mining taxation; royalties (search for similar items in EconPapers)
JEL-codes: L72 Q32 Q38 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-05, Revised 2020-11
New Economics Papers: this item is included in nep-pbe
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http://econbus-papers.mines.edu/working-papers/wp202005v2.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: The impacts of profit-based royalties on early-stage mineral exploration (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp202005

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