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Abstract

This article examines the case of a risk‐averse mining firm facing a resource rent tax in order both to incorporate the role of the risk‐sharing quality of such a tax and to assess its implications given a government’s lease allocation system. The model develops the conditions required for an investment‐neutral RRT characterised by a threshold rate of return and a rate of tax and suggests that for an auction system of lease allocation, government revenue could be maximised by setting the tax rate below 100 per cent, but that for a discretionary system, it is in the government’s interest to introduce an RRT which is effectively rate‐of‐return regulation.

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