The impact of tax concessions on extraction of non-renewable resources: an application to gold mining in Tanzania

Gold mining firms in Tanzania pay royalty and corporate taxes, but also receive many tax concessions. Such tax incentives may cause to reschedule their extraction plans and thereby change the expected life of a gold mine. We model a representative mining firm’s extraction decision using optimal control theory, into which various tax incentives are introduced to determine their theoretical impact. Our results suggest that in the race to take advantage of tax incentives, a firm may end up making excessive investments, which in turn increases extraction rate. Actual extraction patterns of several gold mining companies in Tanzania are also reviewed.