Impacts of state tax and resource ownership policies on extraction: Evidence from U.S. natural gas production

Abstract

We analyze the impact of different state tax structures and resource ownership policies on natural and shale gas production. Using state-level, quarterly data from seven of the largest shale gas-producing states from 2007 to 2020, we find evidence that both the type of taxation method and the presence of a forced pooling law impact natural gas production. Using random effects models, we find that impact fees do not significantly affect either natural gas or shale gas production relative to severance taxes. Conversely, we find that in states with volume-based tax rates, quarterly natural gas production increases by 2.5 % relative to those states with revenue-based tax rates. We also find that the existence of a forced pooling law decreases quarterly natural gas production with an estimated decline of between 2.6 % to 3.8 % relative to states where no forced pooling law exists. These findings show that the restrictions imposed by forced pooling laws have larger impacts on production compared with different severance tax structures.