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"The petroleum taxation system is intended to be neutral, so that an investment project that is profitable for an investor before tax is also profitable after tax. "

Do you know the specifics of how this is implemented?

Just being profitable (i.e. >$0 profit) wouldn't be sufficient because companies tend to analyse investments in terms of payback period (or maybe IRR).

Does Norway give subsidies up front so that the payback period is the same? If the investment profile is still the same for investors then how does the government make any money through tax? The statement seems to imply that the government keeps the investment profile the same, but that would seem to contradict that taxes are being charged. If taxes balance out the subsidy then how would Norway make money?

Thanks

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Apr 5, 2022·edited Apr 5, 2022

In general, you can make severance taxes more systematic and less arbitrary by taxing the change in land value from resource extraction. See, instead of something like "we'll tax 30% of profits off of resource extraction" which has no basis quite honestly, a true Georgist approach would approach it from the land value POV. If a plot of land is worth $1 billion due to its oil reserve, and after extraction, it is worth $100 million, we know that the tax has to be $900 million.

This has other benefits such as having an inherent incentive to reduce pollution and environmental degradation as you will be taxed if you do something in such a manner that it lowers land values.

Interestingly, this also works backwards; governments should subsidies work that increases land values including exploration and methods of extraction. If a plot of land could potentially be worth $1B if oil reserves are discovered but is currently worth $100 million, the government should then spend up to $900 million in exploring.

Of course, this relies heavily on how well and accurately you can value land (and not just location value, but also value from natural resources), but there are lots of methods, and I believe you Lars are developing a model yourself.

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deletedApr 5, 2022Liked by Joseph Addington
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