Edited by Jeroen C.J.M. van den Bergh
Chapter 5: Economics of Mining Taxation
Philip A. Neher 1. Introduction The economics of mining has traditionally encompassed the taxation of mining enterprises for the purposes of raising revenue. The scope of economic inquiry now extends to taxes for the purpose of generating efficient prices for collateral damage of environmental assets from mining activity. These are described as Pigouvian taxes because they stem from the early work of Pigou (1952) on using taxes to correct for missing or incomplete markets for these assets and their services. The plan is to review first the economics of revenue taxation, moving from traditional to more modern formulations. The next step shows how Pigouvian taxation can be applied to achieve efficient production of external environmental harm from mining. Then these two taxes are related with some reference to practical applications. Dynamic efficiency criteria are used because mining activity necessarily extends over time. The natural resource is a durable and depletable asset, reflecting the fact that concentrations of it are strictly limited in quantity and grade. This ultimate scarcity restricts the appropriate use of static efficiency analysis. 2. Revenue taxation Traditional economic analysis has focused on the efficiency of taxation regimes with the more or less explicit understanding that the mining activity is embedded in an otherwise efficient economy. Then the objective is to devise a tax which does not distort the extraction profile which maximizes private wealth. The normal case is a tax-free, competitive mining activity with no external effects.2The objective is to maximize the present value ( V ) of a...
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