Growth and non-renewable resources: The different roles of capital and resource taxes

Abstract We contrast effects of taxing non-renewable resources with the effects of traditional capital taxes and investment subsidies in an endogenous growth model. In a simple framework we demonstrate that when non-renewable resources are a necessary input in the sector where growth is ultimately generated, interest income taxes and investment subsidies can no longer affect the long-run growth rate, whereas resource tax instruments are decisive for growth. The results stand out both against observations in the literature from the 1970's on non-renewable resources and taxation—observations which were not based on general equilibrium considerations—and against the general view in the newer literature on taxes and endogenous growth which ignores the role of non-renewable resources in the “growth engine”.

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