An evaluation of the relative performance of alternatively structured resource rent taxes

This paper is motivated by the observation that although both the Australian and British governments have imposed resource rent taxes (RRTs) on their petroleum industries, these taxes have different structures, with the British form featuring both a higher threshold rate-of-return on capital above which tax is payable (r), and a higher rate of tax for these excess profits (t), than the Australian form. The analysis in the paper finds that the revenue-generating performance of alternatively structured RRTs depends both on the profit margin on extracted resource and on the riskiness of the resource deposit. Hence no single structure is superior in all situations, although a low r, t pair is better if profit margins and riskiness are low, while a high r, t pair is better if these factors are high. It is suggested that the choice of RRT structure should be conditional on an ex ante evaluation of these factors.