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The Effect of Forest Productivity Taxes on Timber Stand Investment and Rotation Length

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Abstract:

The qualitative and quantitative effects of productivity taxes are modeled. Previous analyses are extended in three directions. First, we correctly derive the qualitative effects of the forest increment tax on initial stand investment and rotation length. Second, we incorporate the harvest income tax into the Faustmann model, derive the qualitative effects of the harvest income tax on initial stand investment and rotation length. The qualitative effects from imposing productivity taxes on rotation length and initial stand investment cannot be predicted apriori. Whether rotation length and initial stand investment increase or decrease depends on whether rotation length and initial stand investment are complementary or competitive inputs in the stumpage volume function. Third, we simulate the effects of productivity taxes for Douglas-fir (Pseudotsuga menziesii [Mirb.] Franco) and loblolly pine (Pinus taeda) stumpage volume functions. Two general conclusions emerge from the simulations. First, similar to the qualitative effects, the quantitative impacts from imposing productivity taxes on rotation length and initial stand investment are impossible to predict a priori. Rotation length and initial stand investment may increase or decrease depending on the form of the volume function, the tax rate, and the interest rate. Second, the impacts of imposing productivity taxes on rotation length and initial stand investment range from quite modest to very large. For. Sci. 37(4):1099-1118.

Keywords: Faustmann Model; forest increment tax; timber taxation

Document Type: Journal Article

Affiliations: Assistant Professor, Department of Forestry, University of Illinois, and Assistant Professor, School of Natural Resources, The University of Michigan, Ann Arbor, MI

Publication date: September 1, 1991

More about this publication?
  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
    Forest Science is published bimonthly in February, April, June, August, October, and December.

    2015 Impact Factor: 1.702
    Ranking: 16 of 66 in forestry

    Also published by SAF:
    Journal of Forestry
    Other SAF Publications
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