The Pigou Club's Powerful Members
By Arnold Kling
77 percent of the world’s known oil reserves are in the hands of state-owned oil companies. Such “companies” do not respond with alacrity to market signals and so are under-investing in new production technologies and even in maintaining the production facilities that they currently have.
The countries with nationalized oil resources siphon the money to pay off key constituencies. You can think of this as an enormous tax on oil production. As with any such tax, it lowers quantity supplied and drives up the price. The members of Greg Mankiw’s Pigou club, who want to see high oil-related taxes, might be pleased. (Of course, Pigou club members might still prefer to see the U.S. levy a high tax, in order to transfer income away from the autocracies and toward the U.S.)