Can oil tax policy change exploration levels?: Empirical evidence from Alaska oil legislation

ABSTRACT

The main contribution of this paper is to examine the effect of a change in Alaska’s oil tax policy such as the 2007 Alaska’s Clear and Equitable Share (ACES) on the production of oil in Alaska, controlling for changes in macroeconomic conditions such as crude oil prices and interest rates. An autogressive distributed lag (ARDL) approach is employed to quarterly data for 1986:q1–2013:q1. The results show that the 2007 ACES has a significantly adverse effect on Alaska oil production in the both short- and long run. It is also found that the oil price plays a determinant role in influencing the short- and long-run behavior of Alaska oil production. Finally, the interest rate has been a significant effect on oil production in the short run, but has little impact in the long run.

KEYWORDS:

• Alaska
• ARDL
• interest rates
• oil prices
• oil production
• oil tax

Notes

¹ It should be pointed out that Leighty and Lin (2012) examine the effect of the ACES tax policy on dynamic oil production decisions in Alaska’s North Slope; they find that the oil tax has little effect on the economically optimal oil production path. However, they adopt the optimal control methods for their analysis.