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Rethinking royalty Rates: Why There Is a Better Way to Tax Oil and Gas Development

Author

Listed:
  • Colin Busby

    (C.D. Howe Institute)

  • Benjamin Dachis

    (C.D. Howe Institute)

  • Bev Dahlby

    (University of Alberta)

Abstract

When provinces raise royalties charged on oil and gas production, the result can be less, not more tax revenues. The authors show how resource-rich provinces would be better off relying more on auctions for exploration and development rights and relying less on royalties levied on output. Oil and gas taxation in Canada consists of two main elements: an auction payment and royalties that apply to the value of resources extracted. The authors examine the results of Alberta’s short-lived decision, in 2007, to increase royalty rates on oil and gas production. Accounting for differences in bonus bids across provinces in the same geological zones, the authors report that Alberta government revenue, collected through bonus bids, declined by nearly as much as the projected increase in royalty payments.

Suggested Citation

  • Colin Busby & Benjamin Dachis & Bev Dahlby, 2011. "Rethinking royalty Rates: Why There Is a Better Way to Tax Oil and Gas Development," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 333, September.
    • Handle: RePEc:cdh:commen:333
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    Citations

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    Cited by:

    1. Benjamin Dachis & William B.P. Robson & Nicholas Chesterley, 2014. "Capital Needed: Canada Needs More Robust Business Investment," e-briefs 179, C.D. Howe Institute.
    2. Bev Dahlby, 2012. "Reforming the Tax Mix in Canada," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 5(14), April.
    3. Robin Boadway & Michael Keen, 2014. "Rent Taxes and Royalties in Designing Fiscal Regimes for Non-Renewable Resources," CESifo Working Paper Series 4568, CESifo.

    More about this item

    Keywords

    Fiscal and Tax Competitiveness; Province of Alberta; oil and gas royalties; tax revenues;
    All these keywords.

    JEL classification:

    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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