Slowing Fossil Fuel Extraction: A Role for Taxation of Exports,Capital Gains and Interest Income |
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Authors: | Creina Day Garth Day |
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Abstract: | This paper develops a model of a growing open economy rich in non‐renewable resources, the extraction of which negatively impacts domestic productivity and whose sector competes with final production for capital. We analyse how tax rates on capital gains and interest income and the time trend of an export revenue tax rate could slow the extraction of resources for export. We find that taxing capital gains and interest income at the same rate and setting an export revenue tax rate to decline at the marginal social cost of extraction would defer extraction. An export revenue tax rate need not fall over time to curb depletion if capital gains are taxed at a lower rate than interest income, which is second best to taxing asset returns at the same rate when the resources sector competes for capital. |
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Keywords: | resource depletion open economy export tax capital gains tax income tax capital allocation C61 H21 H23 O44 Q30 Q54 |
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