This dissertation provides three models pertaining expropriation and production decisions in the natural resources industries. The first two chapters are intertwined: in these, the government relies on two tools to capture the rents from privately-owned Natural Resources Companies, a corporate income tax and the possibility of expropriating the assets. A real options model is used to assess the effect that progressiveness in taxation has on the political risk of a natural resources project. In the first chapter, we discover that under certain conditions for the underlying commodity: low prices or forward curves in backwardation - the introduction of an equivalent but more progressive tax regime decreases the political risk and the corresponding deadweight loss. However, when initial prices are too high or initial futures curves are in strong contango, the introduction of a progressive tax regime ends up significantly increasing the risks. In the second chapter, producers are able to foresee the risks of expropriation and thus change their behaviour: the results are mixed. As in the previous case, with lower prices and less tendency to expropriate, the scheduling of production allows for gains in the value of the operation for the firms. More progressive tax regimes end up being detrimental to the government, which in some cases can even result in a non-stable equilibrium with the producers and governments trying to outguess each other and end up cycling both the production and the expropriation probability in order to maximise their respective expected value for the operations. This has a detrimental effect for all parties involved. Finally, the third chapter introduces the possibility that a government levies royalties over sales. The development of home-based institutions is going to affect the amount of tax evasion that a government will face and thus determine the appropriate combination of taxes that it must choose. We find that when the host country's tax and technological capacity are too low, a state has no incentives to improve its institutions and becomes trapped in a low tax, low revenue situation: what we call a Royalty Trap. We end up by showing the evolution of tax capture in Chile during the 20th century to illustrate how these concepts might be applied.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:757941 |
| Date | January 2018 |
| Creators | Vera-Concha, Germán E. |
| Contributors | Venables, Anthony |
| Publisher | University of Oxford |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | http://ora.ox.ac.uk/objects/uuid:b55dc55d-218c-4feb-a93b-991eebb61d10 |
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