WHO PAYS THE SEVERANCE TAX?

ABSTRACT Over the past four years, taxes levied by states on energy production have become a source of contention between the “energy have” and “energy have–not” regions of the nation. The popular notion that the taxes are shifted forward to consumers has gone virtually unchallenged in the policy debate. This paper examines the incidence and burden of severance taxes and also assesses the impact of severance taxation on production, investment, and land use. The author concludes that severance taxes are not shifted forward to consumers but are borne by producers and resources owners in the form of reduced profits and rents.