Abstract
Oklahoma assesses a production tax of seven percent on the extraction of oil,
natural gas, and other minerals. However, since July 2002, it has taxed production
from horizontal wells at one percent for the first 48 months of production. This is
a significant tax incentive relative to the neighboring state of Texas, particularly
considering the limited evidence of the effectiveness of severance tax incentives
for increasing in-state development of immobile resources. This paper examines
whether the tax incentive encouraged horizontal development in Oklahoma relative
to Texas. Our findings indicate that the incentive is not associated with an increase
in development.
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