Tax Effects upon Oil Field Development in Venezuela

Osmel Manzano May 2000. Tax Effects upon Oil Field Development in Venezuela. Important reforms have been made to the oil sector tax code in Venezuela. Given its diversity of oil resources, there was a concern that some resources were not being exploited because of the structure of the tax code. This paper uses traditional theoretical models to review these reforms. Then, a panel of 821 Venezuelan oil (elds was used to estimate the effects of the reforms. The major conclusion reached is that reforms based on the development of marginal (elds -(elds that will not produce because of the tax structuremay overlook the distortions generated by the tax system in non-marginal (elds, distortions that can be greater than is the case in marginal (elds. Graduate Student at the Massachusetts Institute of Technology. The author would like to thank James Poterba, Daron Acemoglu, Roberto Rigobon, James Smith, Rudiger Dornbusch, Jaume Ventura, Adolfo de Motta, Fernando Aportela, seminars participants at the Colorado School of Mines and the University of Calgary, and participants in the Public Finance Workshop at MIT for their comments and suggestions. I am deeply indebted to Humberto Medina, who let me use his data, and to Luis Pacheco, who introduced me to the particulars of oil production in Venezuela. All remaining errors are mine. The support of Petroleos de Venezuela S.A. and the Centre for Energy and Environmental Policy Research at MIT is also acknowledged. Comments upon the following are welcome, and should be sent to: [email protected]