The impacts of profit-based royalties on early-stage mineral exploration

The impact of public policy on the mineral industries is difficult to measure due little short-term responsiveness changes by companies already investing in known fixed deposits. Nevertheless, early-stage (or grassroots) exploration has been suggested provide early signals about a policy. Among policies, taxation received plenty attention theoretical analysis and simulation studies, but empirical evaluation. Profit-based royalties should affect decreasing expected value discovered deposit. approach here uses difference-in-difference strategy, analyzing Chilean mining royalty 2004 2010. first tax change argued be exogenous as it happened political cycle line with major increase commodity prices, later modification occurred result earthquake. Results indicate surprisingly small average grassroots exploration. However, effect heterogeneous larger increased their budget opposed junior companies. absence geographical spillovers not only supports these estimated effects also suggests that neighboring countries do need engage harmful competition.