IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v8y1983i2p1-14.html
   My bibliography  Save this article

Distortions Created by Taxes Which are Options on Value Creation: The Australian Resources Rent Tax Proposal

Author

Listed:
  • Ray Ball

    (Australian Graduate School of Management, University of New South Wales.)

  • John Bowers

    (Australian Graduate School of Management, University of New South Wales.)

Abstract

The proposed tax on economic rents earned from Australian resources investments is examined from the viewpoint of the economist's neutrality criterion. Proposed by Garnaut and Clunies-Ross (1975, 1977), the Resources Rent Tax is alleged to be neutral in that it is alleged not to inhibit or distort investment behaviour. We show that the proposed tax effectively is a call option on the value created by every individual resources project. By adapting the Black-Scholes (1973) call option valuation formula, we then demonstrate that the effective incidence of the tax depends upon each project's risks, life and viability. Hence, under conditions of risk, the Resources Rent Tax fails the neutrality criterion.

Suggested Citation

  • Ray Ball & John Bowers, 1983. "Distortions Created by Taxes Which are Options on Value Creation: The Australian Resources Rent Tax Proposal," Australian Journal of Management, Australian School of Business, vol. 8(2), pages 1-14, December.
    • Handle: RePEc:sae:ausman:v:8:y:1983:i:2:p:1-14
    DOI: 10.1177/031289628300800201
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/031289628300800201
    Download Restriction: no
    File URL: https://libkey.io/10.1177/031289628300800201?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paolo Panteghini, 2001. "On Corporate Tax Asymmetries and Neutrality," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 269-286, August.
    2. Diderik Lund, 2009. "Rent Taxation for Nonrenewable Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 287-307, September.
    3. Lund, Diderik, 2006. "Valuation, leverage and the cost of capital in the case of depreciable assets," Working Papers 03-2003, Copenhagen Business School, Department of Economics.
    4. Paolo M. Panteghini, 2002. "Corporate Tax Asymmetries under Investment Irreversibility," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 207-226, July.
    5. Vesa Kanniainen & Paolo M. Panteghini, 2013. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 167-193, June.
    6. Lund, Diderik, 2006. "Taxation and systematic risk under decreasing returns to scale," Working Papers 02-2003, Copenhagen Business School, Department of Economics.
    7. Diderik Lund, 2002. "Taxation, Uncertainty, and the Cost of Equity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 483-503, August.
    8. Lund, Diderik, 2009. "Marginal versus Average Beta of Equity under Corporate Taxation," Memorandum 12/2009, Oslo University, Department of Economics.
    9. Joseph K. Cheung, 1989. "On the nature of deferred income taxes," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 625-641, March.
    10. Halvorsen, H.E. & Lund, D., 1998. "Rent Taxation when Cost Tranfers are Possible, but Costly," Memorandum 20/1998, Oslo University, Department of Economics.
    11. Boyd Blackwell & Brian Dollery, 2013. "Resource Taxation and Remote Aboriginal Expenditure," Economic Papers, The Economic Society of Australia, vol. 32(3), pages 360-382, September.
    12. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
    13. Saman Majd & Stewart C. Myers, 1986. "Tax Asymmetries and Corporate Income Tax Reform," NBER Working Papers 1924, National Bureau of Economic Research, Inc.
    14. Saman Majd & Stewart C. Myers, 1987. "Tax Asymmetries and Corporate Tax Reform," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 343-376, National Bureau of Economic Research, Inc.
    15. Robin Boadway & Michael Keen, 2009. "Theoretical Perspectives On Resource Tax Design," Working Paper 1206, Economics Department, Queen's University.
    16. Lund, Diderik, 2005. "An analytical model of required returns to equity under taxation with imperfect loss offset," Memorandum 13/2005, Oslo University, Department of Economics.
    17. Smith, James L., 2013. "Issues in extractive resource taxation: A review of research methods and models," Resources Policy, Elsevier, vol. 38(3), pages 320-331.
    18. Bobylev, Yuri & Rasenko, Olesya, 2017. "Comparative Analysis of Tax Regimes in the Oil Sector," Working Papers 041723, Russian Presidential Academy of National Economy and Public Administration.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:8:y:1983:i:2:p:1-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.