Employment and Income Effects of Investments Made Using the Act 13 Unconventional Natural Gas Impact Fee in Pennsylvania

Abstract

Unconventional natural gas extraction presents numerous opportunities and risks for communities across the United States. To capture a portion of the revenue generated by the resource states tax unconventional natural gas development. While most states collect revenue via severance taxes, Pennsylvania took a novel approach and established an impact fee on the industry instead. Unlike severance taxes in other states, the fee is collected annually and distributed directly to municipalities. While reports show that municipalities use the funds to pay for critical infrastructure, no best practices on how to allocate the funds exist. Citing the literature on mineral resource extraction and infrastructure-led development in American communities, this study examined impact fee payments made to counties with unconventional natural gas wells. The study evaluated whether counties that used the funds to invest in infrastructure were better off in terms of employment and income than other shale-producing counties that did not. Panel fixed- and random-effects regressions suggested that no statistically significant employment or income effects existed. The results suggest that local infrastructural investments are not a successful way to overcome the resource curse issues identified in the literature.