Do tax policies affect the natural gas industry? Evidence based on panel vector autoregressions

Taxation as a fiscal policy measure can influence investment and production decisions in the natural gas industry. Using state-level data from 2007 to 2020, this paper examines the impact of tax policies on natural gas and shale gas production, as well as investments in terms of new producing wells in seven of the largest shale gas-producing states. By employing panel vector autoregressions, we find that the increased tax revenue causes a substantial short-run decrease in the natural gas industry based on the tax collected, but the long-term impact is limited. Meanwhile, tax revenue is significantly affected by natural gas production. The findings of this empirical study are expected to inform policymakers regarding the interdependencies between fiscal policies, production, and investment in the industry.