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Optimal Forest Taxation under Private and Social Amenity Valuation

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Abstract:



This article analyzes the socially optimal forest taxation in the rotation framework when the government has a binding tax revenue requirement. In the Faustmann model, the optimal design of taxation consists of nondistortionary taxes, such as site productivity tax, site value tax, or profit tax. A combination of distortionary unit (or yield) tax and timber tax can also be used to collect the tax revenue in a nondistortionary way. In the Hartman model, with forest amenity services as a public good, the optimal design consists of a nondistortionary tax and a Pigouvian tax, which adjusts the private rotation age to the socially optimal one. Now only the site productivity tax is nondistortionary, while unit, yield, timber, site value, and profit taxes generally serve as corrective Pigouvian taxes. Finally, in the absence of a nondistortionary tax, if the marginal valuation of amenity services is nondecreasing with the age of forest stand, a combination of unit (or yield) and timber taxes can be used for both tax revenue collection and Pigouvian correction. FOR. SCI.49(4):596–607.

Keywords: Rotation age; environmental management; forest; forest amenities; forest management; forest resources; forestry; forestry research; forestry science; natural resource management; natural resources; optimal forest taxation

Document Type: Miscellaneous

Affiliations: 1: Department of Economics, University of Helsinki, P.O. Box 54 Finland, Fin 00014, erkki.koskela@helsinki.fi 2: Department of Economics and Management, University of Helsinki, P.O. Box 27 Finland, Fin 00014, markku.ollikainen@helsinki.fi

Publication date: August 1, 2003

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