Original version

Osmundsen, P.; Løvås, K. (2013) Trends and trade-offs in petroleum tax design.
International Journal of Global Energy Issues

Abstract
How should tax systems be designed to account for the characteristics of the
government, the oil companies and the projects in order to maximise welfare for the
country's inhabitants? How should vital government characteristics reflected in
parameters such as impatience to obtain tax revenue - the discount rate - and the
willingness and ability to carry risk be accounted for in tax design? These basic
issues in petroleum tax design are discussed by means of a tax model for a
discretionary licensing regime (Norway) and a production sharing agreement regime
(Angola). The analysis covers the entire life cycle of a typical petroleum project,
i.e., including the exploration decision. We discuss the trade-off between
progressivity on the one hand and the incentive for the oil companies and the host
government to carry risk and investment on the other. Thus, we provide basic
elements in a state contingent tax design. The paper also surveys trends in
petroleum taxation, and discusses how tax elements vary over the business cycle.