Template-Type: ReDIF-Paper 1.0
Author-Name: Niko Jaakkola
Author-Name-First: Niko
Author-Name-Last: Jaakkola
Author-Workplace-Name: Ifo Center for Energy, Climate and Exhaustible Resources, Ifo Institute
Author-Name: Daniel Spiro
Author-Name-First: Daniel
Author-Name-Last: Spiro
Author-Workplace-Name: Department of Economics, University of Oslo
Author-Name: Arthur A. van Benthem
Author-Name-First: Arthur A.
Author-Name-Last: van Benthem
Author-Workplace-Name: The Wharton School, University of Pennsylvania
Title: Finders, Keepers?
Abstract: Natural-resource taxation and investment exhibit cycles in a vast number of countries, driving political turmoil and power shifts. Using a rational-expectations model, we show cycles result from governments' inability to commit to future taxes and firms' inability to credibly exit a country indefinitely. A government sets a low initial tax inducing high investments, which in turn prompts it to increase taxes next period. This induces low investment thus low future taxes, and so on. We investigate which factors reinforce cycles and present ways of avoiding them, and document cycles across many countries including detailed case studies of two Latin-American countries.
Classification-JEL: H25, Q35, Q38
Creation-Date: 2016-07
File-URL: https://doi.org/10.3386/w22421
File-Format: Application/pdf
DOI: 10.3386/w22421
Handle: RePEc:oml:wpaper:201702