Assume that the government levies a one-time-only tax on oil companies equal to a proportion of the value of the company's oil reserves. According to the neoclassical model, if firms face no financing constraints and also believe the tax will not be repeated, the effect of this tax on investment by these firms will be to:

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According to the neoclassical model, if firms face no financing constraints and believe that the tax will not be repeated, they will not change their investment behavior in response to a one-time tax on their oil reserves. This is because the tax will not affect the company's marginal cost of production, and therefore will not impact their optimal production level. Additionally, the tax does not alter the company's future expected profits or cash flows, so it does not impact their investment decisions. Thus, the tax will have no effect on investment by these firms.

Assume That the Government Levies a One-Time-Only Tax on Oil