An empirical analysis of the impacts of taxes and royalties on the supply of conventional crude oil in Alberta

This thesis is an investigation of the impacts of taxes and royalties---government fiscal policy tools---on conventional crude oil supply in Alberta. The thesis develops a dynamic economic model of the Alberta's conventional crude oil industry and uses it to evaluate the quantitative impacts of government fiscal policies on the exploration and extraction of conventional crude oil in Alberta, Canada. Special attention is given to the specification of the structural functions of the model---the extraction cost and reserve additions functions---than has been customary in the empirical literature.;Using GAMS/MINOS, a baseline solution to the dynamic petroleum exploiting problem is obtained. This baseline solution (where government fiscal policy tools are not applicable) is then compared with the solution to the problem where government policy tools are imposed. By this comparison, I am able to quantitatively evaluate the relative impacts of the policy tools.;The results show that these taxes and royalties tend to shorten the life of the industry (by 10.34%), reduce activity level, reduce ultimate recovery of conventional crude oil by 7.96%, render more (8.57%) of the established reserve sub-economic (high-grading) and create social welfare loss of 12.87% (dead-weight loss). Results of sensitivity analysis reveal that federal corporate income tax has a larger adverse effect on the performance of the industry in terms of creating higher dead-weight loss and shortening the life of the industry than provincial corporate income tax and crown royalties.;The results provide a guide as to the relative impacts of different policy tools on conventional crude oil supply, government revenue and deadweight loss.;On the basis of the likelihood ratio tests, I conclude that the formation of the extraction cost of the resource extracting and exploring firm requires two state variables rather than the conventional approach of using a single state variable (this is an innovation to the existing empirical literature). It is further concluded that taxes and royalties distort the performance of the industry by creating social welfare loss, causing high-grading and shortening the life of the industry.