On the taxation of nonreplenishable natural resources

A resource constraint alters the profit maximizing decision rule for a natural resource producer. Stich a producer also responds differently to common policy instruments. For a zero rate of discount, it is shown that a franchise (lump sum), severance (ad valorem or unit), or profit tax result, respectively, is increased, unchanged, and unchanged output. These results are generalized to the case when the rate of discount is nonzero and tax rates vary over time. A tax-subsidy scheme for guaranteeing the equality of optimal social and private rates of depletion is presented for a case where these rates diverge.