Shell have announced record profits of $27bn. This is the highest profit ever made by a European company and is only surpassed worldwide by the annual profits of another oil company ExxonMobil at $40bn. These high profits have led to calls for a windfall tax to be imposed on the oil companies and the articles below consider the likely impact of a tax of this nature.
Threat of windfall tax to energy companies is ‘legalised piracy’ Times Online (28/2/08)
Tax uncertainty a sure-fire killer Times Online (28/2/08)
Q&A: Windfall tax on Shell BBC News Online (31/1/08)
The great fuel folly Guardian (5/2/08)Video
Windfall tax suggested for fuel profits BBC News Online (February 2008)
Questions
| 1. | Using diagrams as appropriate, show the impact on the equilibrium level of price and output of Shell of a windfall tax being imposed on their profits. |
| 2. | Discuss the extent to which the high level of profitability of oil companies is determined by the oil price. |
| 3. | Analyse whether a windfall tax is an economically efficient form of taxation. What alternatives could a government consider that might be more efficient? |