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Natural-resource taxation and investment exhibit cycles in a vast number of countries, driving political turmoil and power shifts. Using a rational-expectations model, we show cycles result from governments’ inability to commit to future taxes and firms’ inability to credibly exit a country indefinitely. A government sets a low initial tax inducing high investments, which in turn prompts it to increase taxes next period. This induces low investment thus low future taxes, and so on. We investigate which factors reinforce cycles and present ways of avoiding them, and document cycles across many countries including detailed case studies of two Latin-American countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6435

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Hydrocarbon Resources ; Nonrenewable Resources and Conservation: Government Policy
• Subject: resource taxation ; tax cycles ; limited commitment ; expropriation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jaakkola, Niko ; Spiro, Daniel ; van Benthem, Arthur A.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/161874
• Last update: 10.03.2025, 11:43 AM CET