UiS Working Papers in Economics and Finance
Petroleum taxation and investment behaviour
(), Magne Emhjellen, Thore Johnsen, Alexander Kemp and Christian Riis
Abstract: Petroleum administration can be regarded as a
principal-agent problem. The government allocates exploration and
production rights to petroleum companies on behalf of the population. The
government is the principal and the companies are agents. With the aim of
capturing revenue for the state, the government devises a petroleum tax
system which takes account of the investment decisions made by the
companies, while acknowledging for the fact that the companies may report
strategically to the government. An important issue is how tax deductions
are to be treated in investment analysis. A discrepancy arises here between
assumptions made in some areas of tax theory and the actual investment
analyses conducted by the companies. Tax theory has given rise to
discussion and controversial tax proposals for the petroleum sector in
Norway, Denmark and Australia. It led, for example, to reductions in
tax-related depreciation for the Norwegian petroleum industry in May 2013.
The article reviews this tax debate and analyses the implications of basing
tax design on counter-factual investment behaviour.
Keywords: petroleum taxation; tax design; valuation; corporate behaviour; (follow links to similar papers)
JEL-Codes: F21; G02; H21; H25; H32; L71; M21; (follow links to similar papers)
22 pages, October 9, 2014
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