The issue of how best to structure and tax the upstream oil sector is of great interest to policy-makers, especially given the poor growth record of several oil-rich countries. The research presented in this thesis attempts to identify the optimal fiscal structure for oil producing nations with respect to long term growth.
While there are several different fiscal regimes employed in the oil industry, this thesis focuses on resource rent taxes (RRTs) and national oil companies (NOCs).
Despite their fundamental differences, both regimes are designed to provide host governments with their adequate share of oil rents. A theoretical case for each of the two strategies is presented in a simple principal-agent framework, where RRTs are found to provide a greater growth effect than NOCs.
The issue of resource ownership in resource curse literature has largely been ignored until the recent work of Brunnschweiler (2009). In addition, empirical and theoretical evidence on the correlation between resource rent taxes and economic growth is limited. This thesis will be among the first to examine such a link.
Simple growth regressions are used by this thesis to identify the effects of RRTs and NOCs on GDP per capita growth in a sample of major oil producing countries. The results suggest that increased levels of state-ownership are associated with low levels of growth in all countries, while RRTs are correlated with higher growth only in wealthy countries.
This thesis then applies these theoretical and empirical results to Australia and Brazil, who have adopted the quite diverse strategies of RRT and NOC respectively. However, both have successfully attracted development projects and oil majors while maintaining impressive growth rates.
The timing of this thesis is particularly useful to both countries. Brazil, in the wake of recent oil discoveries, has transferred greater power to its NOC Petrobras. Australia, on the other hand, recently extended its petroleum resource rent tax (PRRT) to its mining sector. The results suggest that Australia's policy is likely to be more beneficial than Brazil's in the long term.