Tax neutrality and the Saskatchewan Uranium Royalty

In their analysis of the Saskatchewan Uranium Royalty (SUR) scheme Anderson and Barnett (1983) conclude that the scheme is effective in that, together with the other levies on the uranium industry, it succeeds in appropriating 75–80% of available economic rent under reasonable assumptions about uranium price and production costs. While collecting a substantial proportion of economic rent was a major provincial government objective in designing the tax structure, provincial tax planners may also have been concerned to ensure that marginal production decisions be affected as little as possible by the tax. Because their model of the Key Lake mine considers only the extraction plan adopted by the firm, Anderson and Barnett are unable to conclude whether a different plan would have been adopted in the absence of the tax. In other words, the nature of their model confines their investigation to the question of effectiveness, as defined above. The purpose of the present article is to examine the question of whether the SUR is likely to be neutral with respect to the extraction plan and to assess the effects of any tax-induced distortion.