Issue link: http://www.e-digitaleditions.com/i/111663
Taxes, Oil, and the World���s Bottom Line AS THE WORLD continues to deplete its oil and gas reserves���many located in developing countries���it becomes increasingly important that these reserves are sustained and distributed effectively. James Smith, a professor from Southern Methodist University���s Cox School of Business in Dallas, Texas, is working with the International Monetary Fund (IMF) on research that addresses this global problem. Smith has developed his version of a ���nancial model that determines how a government���s tax system could attract ���rms to its country���s natural resources, such as oil, gas, or minerals. As the ���banker of last resort,��� the IMF is interested in this model because it wants to help developing countries better manage their resources and ���scal policies. James Smith Smith���s model looks at nine different tax policies, ranging from royalties to production sharing contracts to resource rents. It also accounts for the factors that encourage investment, including the ease of recovery of the resource, the timing and intensity of exploration and initial development, and the tipping point where taxes become so high that investors look elsewhere. The goal for governments is to take a fair share in tax while still making their countries attractive for development, Smith explains. He ���nds that the resource rent tax system (RRT), created and used in Australia for 25 years, seems to be the optimal approach. Under RRT, the investors recover their costs, and the government and the investors share additional pro���t on a sliding scale. Smith���s research also highlights the dif���culties that can occur when governments are eager to receive the revenue from their resources, but investors are slow to extract them. Disputes already have occurred between investors and governments in Iraq, Russia, China, and Latin America. ���As margins become narrower, the subtlety of a tax system can create a wedge that pits government and investor against each other in terms of most favorable development time,��� says Smith. He cites Iraq, where large oil ���elds are easily available, just underground, but where government service contracts are so restrictive that investors are reluctant to move forward. Some investors might choose regions where oil reserves are more expensive and risky to access���in deep water, for example���but where tax structures are more favorable. Smith���s working paper for the IMF, ���Modeling the Impact of Taxes on Petroleum Exploration and Development,��� is available at www. imf.org/external/pubs/cat/ longres.aspx?sk=40122.0. STOCKB ROKE RXTRA/G LOW I MAG ES RESEARCH RECOGNITIONS The American Finance Association has awarded its 2013 Fischer Black Prize to Ulrike Malmendier, ���nance professor at the Haas School of Business at the University of California, Berkeley. The prize honors the top ���nance scholar under 40 years old. Malmendier was recognized for the originality of her research in the areas of corporate ���nance, behavioral economics and ���nance, contract theory, and the history of the ���rm. For example, in ���Paying Not to Go to the Gym,��� which appeared in a 2006 issue of the American Economic Review, Malmendier and Berkeley economics professor Stefano DellaVigna showed that although many people with gym member- ships visit their gyms too infrequently to justify the monthly dues, they stay enrolled rather than admit their failure to exercise. Eric Johnson, Norman Eig Professor of Business at Columbia Business School in New York City, and Itamar Simonson, Sebastian S. Kresge Professor of Market- ing at the Stanford Graduate School of Business in California, have been selected as 2012 Association for Consumer Research Fellows. Recognized for the impact of their individual work in the ���eld of consumer behavior, Johnson and Simonson are two of only 25 ACR Fellows since the award was established in 1979. BizEd March/April 2013 61