A Note on Property Taxation of a Non-Renewable Resource

Abstract

Suppose that a property tax is imposed on the competitive owners of a non-renewable resource in a closed economy. This tax obligation is naturally capitalized into a reduction in the market value of the existing stock of the resource. In this paper, it is shown a) that under many circumstances the owners of the resource are necessarily made worse off by more than the total capitalized value of the tax payments, and b) that consumers are necessarily made better off by the imposition of a small tax. Thus, unlike most competitive situations in which taxes are paid partly by consumers and partly by producers, the property tax, as well as the allocative distortion due to the tax, may be born entirely by producers, and consumers may actually benefit--regardless of any expenditures that the tax may support.