Abstract
Oklahoma assesses a production tax of seven percent on the extraction of oil,natural gas, and other minerals. However, since July 2002, it has taxed productionfrom horizontal wells at one percent for the first 48 months of production. This isa significant tax incentive relative to the neighboring state of Texas, particularlyconsidering the limited evidence of the effectiveness of severance tax incentivesfor increasing in-state development of immobile resources. This paper examineswhether the tax incentive encouraged horizontal development in Oklahoma relativeto Texas. Our findings indicate that the incentive is not associated with an increasein development.
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