A general equilibrium model of international trade with pure intermediate goods is adapted to analyze the interregional incidence of a severance tax. The effects of a small increase in a production tax on an intermediate good are not a priori predictable. In fact, outputs of final goods, factor rewards, and the commodity price ratio can move in either direction. An empirical illustration of the model indicates that energy-producing states may benefit from severance tax increases, but the nation suffers a net loss due to the tax-induced curtailment of energy production.
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