Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161874
Authors: 
Jaakkola, Niko
Spiro, Daniel
van Benthem, Arthur A.
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6435
Abstract: 
Natural-resource taxation and investment exhibit cycles in a vast number of countries, driving political turmoil and power shifts. Using a rational-expectations model, we show cycles result from governments’ inability to commit to future taxes and firms’ inability to credibly exit a country indefinitely. A government sets a low initial tax inducing high investments, which in turn prompts it to increase taxes next period. This induces low investment thus low future taxes, and so on. We investigate which factors reinforce cycles and present ways of avoiding them, and document cycles across many countries including detailed case studies of two Latin-American countries.
Subjects: 
resource taxation
tax cycles
limited commitment
expropriation
JEL: 
H25
Q35
Q38
Document Type: 
Working Paper

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