{ "title": "Progressive Taxation of Extractive Resources as Second-Best Optimal Policy", "publication": "IMF Working Papers, June 13, 2018", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923", "canonical": "https://www.imf.org/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923", "overlayPath": "/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/index.md", "summary": "The paper provides a critical review of the literature on the concept of progressivity in the taxation of petroleum and mineral resources and offers a fresh perspective on its purpose and measurement.", "sections": [ { "heading": "Main findings", "content": "- Regressive taxes, such as royalties, exist to satisfy policy objectives other than revenue maximization, such as achieving early revenues.\n- Rent-based or profit-sensitive fiscal instruments must be designed with progressive marginal rates to maximize government revenues.\n- Emphasis should be placed on tax rate progression of the direct taxation of profit or rent, rather than progressivity in the overall government take.\n- Because regressive taxes, by their very nature, tend to be distortionary, the optimal degree of progression in the rent- or profit-tax rates must take these distortions into account.\n- The paper offers a fresh perspective on the purpose and measurement of progressivity in the taxation of petroleum and mineral resources." }, { "heading": "Analytical approach", "content": "- Provides a critical review of the literature on the concept of progressivity in the taxation of petroleum and mineral resources.\n- Illustrates central ideas with a simple analytical model in which a second-best optimal tax rate schedule on profit is characterized in the presence of the tax distortions caused by the regressive taxes.\n- Focuses on the tax rate progression of direct taxation of profit or rent and the interaction between regressive instruments and profit-sensitive instruments." }, { "heading": "Policy implications and recommendations", "content": "- Design rent- or profit-sensitive fiscal instruments with progressive marginal rates to increase government capture of economic rent.\n- Recognize and account for the distortionary effects of regressive taxes (for example, royalties) when setting the optimal degree of progression in profit-tax rates.\n- Use regressive taxes where justified by non-revenue objectives (for example, achieving early revenues), but balance their use against the efficiency costs they introduce into the tax system.\n- Prioritize clarity in measuring progressivity: measure and target progression in marginal rates on profit/rent rather than focusing solely on overall government take." }, { "heading": "Key concepts and terminology emphasized", "content": "- Average effective tax rate\n- Marginal effective tax rate\n- Progressive taxation\n- Rent tax / rent capture\n- Profit tax and rate schedule\n- Regressive taxes (royalties)\n- Second-best optimality and tax distortions\n- Capture mechanism, economic rent, production function, input choice\n\nProgressive Taxation of Extractive Resources as Second-Best Optimal Policy — https://www.imf.org/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923\n\n---\n\n Content in this bundle\n\n- Progressive Taxation of Extractive Resources as Second-Best Optimal Policy, WP/18/130, June 2018\n - Progressive Taxation of Extractive Resources as Second-Best Optimal Policy, WP/18/130, June 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Progressive Taxation of Extractive Resources as Second-Best Optimal Policy, WP/18/130, June 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/index.md)", "[Structured JSON version](/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/index.json)", "[Bundle manifest](/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/bundle-manifest.json)", "Published: June 13, 2018", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781484361627.001", "Regressive taxes, such as royalties, exist to satisfy policy objectives other than revenue maximization, such as achieving early revenues.", "Rent-based or profit-sensitive fiscal instruments must be designed with progressive marginal rates to maximize government revenues.", "Emphasis should be placed on tax rate progression of the direct taxation of profit or rent, rather than progressivity in the overall government take.", "Because regressive taxes, by their very nature, tend to be distortionary, the optimal degree of progression in the rent- or profit-tax rates must take these distortions into account.", "The paper offers a fresh perspective on the purpose and measurement of progressivity in the taxation of petroleum and mineral resources.", "Provides a critical review of the literature on the concept of progressivity in the taxation of petroleum and mineral resources.", "Illustrates central ideas with a simple analytical model in which a second-best optimal tax rate schedule on profit is characterized in the presence of the tax distortions caused by the regressive taxes.", "Focuses on the tax rate progression of direct taxation of profit or rent and the interaction between regressive instruments and profit-sensitive instruments.", "Design rent- or profit-sensitive fiscal instruments with progressive marginal rates to increase government capture of economic rent.", "Recognize and account for the distortionary effects of regressive taxes (for example, royalties) when setting the optimal degree of progression in profit-tax rates.", "Use regressive taxes where justified by non-revenue objectives (for example, achieving early revenues), but balance their use against the efficiency costs they introduce into the tax system.", "Prioritize clarity in measuring progressivity: measure and target progression in marginal rates on profit/rent rather than focusing solely on overall government take.", "Average effective tax rate", "Marginal effective tax rate", "Progressive taxation", "Rent tax / rent capture", "Profit tax and rate schedule", "Regressive taxes (royalties)", "Second-best optimality and tax distortions", "Capture mechanism, economic rent, production function, input choice", "**Progressive Taxation of Extractive Resources as Second-Best Optimal Policy, WP/18/130, June 2018**" ], "related": [ { "title": "Progressive Taxation of Extractive Resources as Second-Best Optimal Policy, WP/18/130, June 2018", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2018/wp18130.pdf", "summary": { "path": "/-/media/files/publications/wp/2018/wp18130.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/wp/2018/wp18130.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/index.md", "json": "/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/index.json", "bundleManifest": "/en/publications/wp/issues/2018/06/13/progressive-taxation-of-extractive-resources-as-second-best-optimal-policy-45923/bundle-manifest.json" }, "generatedAtUtc": "2026-09-18T13:36:29.018Z" }