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Determining the optimal tax on mining

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Abstract

This article examines three arguments often raised in support of higher taxes on mining and finds them wanting: First, the wealth or economic rents associated with particularly rich deposits rightfully belong to the citizens of the host country. Second, mining companies should compensate the State and the public for their use of mineral resources, given the intrinsic value arising from their non-renewable nature. Third, the division of the wealth created by mining is unfair. Too much goes to mining companies, and too little to the host country to promote economic development.

It suggests instead that host governments should maximize the net present value of the social benefits flowing from their mineral sector. In practice, unfortunately, it is often difficult to know whether this objective is served by raising or lowering the level of taxation on mining.
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Keywords: Mining; Non-renewable resources; Ricardian rent; Taxation; User costs

Document Type: Research Article

Publication date: 2004-05-01

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