Growth and non-renewable resources: The different roles of capital and resource taxes

We contrast effects of taxing non-renewable resources with the effects of traditional capital taxes and investment subsidies in an endogenous growth model. In a simple framework we demonstrate that when non-renewable resources are a necessary input in the sector where growth is ultimately generated, interest income taxes and investment subsidies can no longer affect the long-run growth rate, whereas resource tax instruments are decisive for growth. The results stand out both against observations in the literature from the 1970's on non-renewable resources and taxation-observations which were not based on general equilibrium considerations-and against the general view in the newer literature on taxes and endogenous growth which ignores the role of non-renewable resources in the "growth engine". (c) 2006 Elsevier Inc. All rights reserved.