Article ID Journal Published Year Pages File Type
7355451 International Review of Economics & Finance 2018 13 Pages PDF
Abstract
This paper develops model of a small open economy with installation costs of capital to analyze how taxes could slow extraction of resources for export. The overseas combustion of depleted resource stocks contributes to global warming, which impedes productivity growth in the small open economy. We find that the optimal resource depletion rate is independent of the social welfare function and discount rate. 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. The analysis is robust to installation costs of capital and transitional dynamics. The findings challenge conventional wisdom and suggest an array of tax policies for a small open economy seeking to curb extraction of resources for export.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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