Finders, Keepers?

48 Pages Posted: 18 Jul 2016 Last revised: 7 Apr 2021

See all articles by Niko Jaakkola

Niko Jaakkola

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Daniel Spiro

Uppsala University, Dept. of Economics

Arthur van Benthem

University of Pennsylvania - Business & Public Policy Department

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Date Written: July 2016

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.

Suggested Citation

Jaakkola, Niko and Spiro, Daniel and van Benthem, Arthur, Finders, Keepers? (July 2016). NBER Working Paper No. w22421, Available at SSRN: https://ssrn.com/abstract=2810931

Niko Jaakkola (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Daniel Spiro

Uppsala University, Dept. of Economics ( email )

Box 513
Uppsala, 751 20
Sweden

Arthur Van Benthem

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States
215-898-3013 (Phone)

HOME PAGE: http://bepp.wharton.upenn.edu/profile/21174/

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