Taxing Economic Rents in Oil Production: An Assessment of UK PRT

Lei Zhang ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Using a irreversible investment model of oil development, this paper shows how a fiscal regime can be neutral in that decision to develop is not affect by tax and efficient in recouping economic rents where cumulated operating profits are taxed if and only if they surpass an appropriate level of tax deductible allowances. For a simplified version of the Petroleum Revenue Tax (PRT) applied to the United Kingdom Continental Shelf until 1993, numerical calculations suggest that PRT was both neutral and relatively efficient. Why then was it substantially removed in 1993? One explanation is that the tax regime may be responding to the oil price so that fiscal change may be reversible, another is that it had disincentive effects not captured in our analysis.

Keywords: Irreversible investment; Oil field development; Tax neutrality; PRT (search for similar items in EconPapers)
JEL-codes: D81 G31 Q32 Q38 (search for similar items in EconPapers)
Pages: 36 pages
Date: 1995
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:445

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