Research seminar: Tax neutrality, entry and discoveries: Evidence from oil drilling in the North Sea

 

Torfinn Harding, NHH: https://www.nhh.no/en/employees/faculty/torfinn-harding/

Tax neutrality, entry and discoveries: Evidence from oil drilling in the North Sea

Abstract:

Cash-flow taxation calls for cash refunds to loss-making firms to leave entry and exit decisions undistorted. We study the introduction of such a refund program in the Norwegian petroleum sector in 2005. Using data on oil exploration in Norway and the UK, we find that the program generated 37% of all new wells, but only 6% of all new discoveries in the period 2005-2015. The drastic drop in discovery rates is consistent with a common value model with endogenous entry. We find that the social benefits of the new discoveries are roughly offset by the cost of dry wells.