Implications of Tax Policy on Investment in a Common-Property Resource

Abstract

This study employs a financial model to examine the aggregate investment expenditures for Gulf of Mexico shrimp vessels. Specifically, the impacts of tax policies—investment tax credits and income taxes—on investment decisions in the Gulf shrimp fishery are evaluated. Contractionary tax policy is an effective tool in limiting entry to the shrimp fishery and, thereby, controlling the problem of overcapitalization. Decreases in the investment tax credit rate, increases in the income tax rate, or a combination of both policies will curtail investment activities in the fishing industry. Implementation of such tax schemes should raise total revenues of vessel owners, in the long run, from what they otherwise would have been.