This paper develops a model of a growing open economy rich in non‐renewable resources, the extraction of which negatively impacts domestic productivity and whose sector competes with final production for capital. We analyse how tax rates on capital gains and interest income and the time trend of an export revenue tax rate could slow the extraction of resources for export. We find that taxing capital gains and interest income at the same rate and setting an export revenue tax rate to decline at the marginal social cost of extraction would defer extraction. An export revenue tax rate need not fall over time to curb depletion if capital gains are taxed at a lower rate than interest income, which is second best to taxing asset returns at the same rate when the resources sector competes for capital.
Authors
Creina Day
Garth Day
Journal article details
- DOI
- 10.1111/1475-5890.12167
- Publisher
- Wiley
- Issue
- Volume 40, Issue 1, March 2019
Suggested citation
Day, C and Day, G. (2019). 'Slowing Fossil Fuel Extraction: A Role for Taxation of Exports, Capital Gains and Interest Income' 40(1/2019)
More from IFS
Understand this issue
Spring Budget 2024: What you need to know
7 March 2024
Spring Budget 2024: the Chancellor’s options
The NHS waiting list: when will it come down?
29 February 2024
Policy analysis
The IFS Scottish Budget Report – 2024–25
22 February 2024
Spring Budget 2024
6 March 2024
Reforming the taxation of non-doms: policy options and uncertainties
4 March 2024
Academic research
Intertemporal income shifting and the taxation of business owner-managers
24 January 2024
Insurance, redistribution, and the inequality of lifetime income
2 November 2023
Walk the talk: Measuring green preferences with social media data
6 November 2023