Penn State Report On Natural Gas Industry in PA

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A severance tax on natural gas extraction in Pennsylvania would create increased costs for gas drilling companies, but the resulting increase in state revenue could yield positive effects for the state’s economy, according to a new report from Penn State’s Institute for Research in Training & Development.

The report, Benchmarks for Assessing the Potential Impact of a Natural Gas Severance Tax on the Pennsylvania Economy, examines the potential impact of a proposed severance tax on natural gas extraction in Pennsylvania. The study was designed as a way to estimate to what extent a gas tax might affect Pennsylvania’s economic picture.

The report is available at http://PA-SevTax.notlong.com.

The report comes amid the rapid growth of the state’s gas-drilling industry. A number of companies have begun extracting natural gas from the state’s Marcellus Shale formation on the heels of new drilling technology.

Institute researchers, Rose M. Baker and David L. Passmore, assessed the effects of generating and spending each $100 million of severance tax revenue between 2011 and 2015 on Pennsylvania’s business sales, employment, income, and population.

Baker and Passmore found that, potentially, every $100 million in production costs that are imposed on oil and gas companies through a severance tax could have a slight negative impact on the state’s economy and population. This is because, with an increased tax burden, the gas companies would create less employment, output, and disposable income for Pennsylvanians. But these negative effects could be more than offset by the effects of increased spending of severance tax revenue by state and local governments.

It is a 26 page pdf. Download Baker, Rose M. and Passmore, David Lynn, Benchmarks for Assessing the Potential Impact of a Natural Gas Severance Tax on the Pennsylvania Economy (September 13, 2010). Available at SSRN: http://ssrn.com/abstract=1667022