Estimating The Optimal Royalty Tax In The Gold Mining Sector Of Ghana
Date
2016-07
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of Ghana
Abstract
Gold is the most important mineral resource in Ghana. It has over the years contributed to Ghana’s
foreign exchange earnings, Gross Domestic Product, employment and government revenue
through taxes. However, mining of gold brings great destruction to Ghana’s forests and its habitats.
These costs are usually not considered in the design of fiscal policies. The question that arises is,
what is the optimal royalty tax rate that would internalize the environmental cost of mining, more
specifically forest degradation? This study seeks to determine the optimal royalty tax rate that
would internalize the environmental cost of forest degradation resulting from gold mining.
Specifically, a dynamic optimization model is estimated where the objective functions of both the
miner and social planner are optimized given their sets of constraints using the current value
Hamiltonian. The results permitted the deduction of the optimal royalty tax rate that would
internalize forest degradation resulting from gold mining. The optimal tax rate depended on the
shadow price of forest resources, interest rate, time, corporate income tax, gold yield per acre of
deforested land and the world market price of gold. Comparative static analysis carried out showed
that the optimal royalty tax rate is negatively related to the world market price of gold, positively
related to interest rate and increases with time. It recommend that policy makers take these
relationships into consideration in designing a royalty tax for the gold mining sector.
Description
Thesis (MPhil)
Keywords
Optimal, Royalty, Tax, Gold Mining Sector, Ghana