Question

Define and explain neutrality of "Samuelson taxation" of an extractive firm

Answer 1

As per economist, Extractive firm is beneficial and harmful for the development of economy. More extraction is useful for fulfilling the present wants of economy, which leads to improve in economic activity and which is useful for the GDP growth rate on the other hand extractive firm is also harmful for the development of country because due to more n more extraction, the supply of resources going decreasing and which is against the sustainable development concept. So if Government impose more tax on extractive firm, so it may leads to decline in extraction so it reduces the resources extraction and if there is less tax on firm, so extraction will be conduct on the large scale. So for maintaining balance, Samuelson suggested neutrality of taxation of an extractive firm.