Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 182: Natural Resource use Conflict: Gold Mining in Tropical Rainforest in Ghana
Wisdom Akpalu () and Peter J. Parks ()
Additional contact information
Wisdom Akpalu: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Peter J. Parks: Department of Agricultural Economics and Marketing, Cook College,, Postal: Rutgers University, New Brunswick, NJ
Abstract: Gold is frequently mined in rainforests that can provide either gold or forest benefits, but not both. This conflict in resource use occurs in Ghana, a developing country in the tropics where the capital needed for mining is obtained from foreign direct investment (FDI). We use a dynamic model to show that an ad valorem severance tax on gross revenue can be used to internalize environmental opportunity costs. The optimal tax must equal the ratio of marginal benefits from forest use to marginal benefits from gold extraction. Over time, this tax must change at a rate equal to the difference between the discount rate and the rate of change in the price of gold. Empirical results suggest that the 3 percent tax rate currently used in Ghana is too low to fully represent the external cost of extraction (i.e., lost forest benefits).
Keywords: Optimal taxation; Efficiency; Externality; Dynamic analysis; Firm behaviour
37 pages, October 28, 2005
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