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Optimal Design of Forest Taxation with Multiple-Use Characteristics of Forest Stands

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  • ERKKI Koskela

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  • MARKKU Ollikainen
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    Abstract

    The paper studies optimal forest taxation under uncertainty about future timber price when private forest owners value amenity services of forest stands and forest stands have public goods characteristics. It is assumed that preferences of forest owners can be described by a quasi-linear, intertemporal utility function which reflects risk aversion in terms of consumption and constant marginal utility in terms of amenity services. The comparative statics of current and future harvesting in terms of timber price risk, site productivity tax and yield tax are first developed. It is shown that, given the optimal site productivity tax, which is independent of the timber harvested and thus non-distortionary, it is desirable to introduce the yield tax at the margin; it both corrects externality due to the public goods characteristic of forest stands and serves as a social insurance device. The optimal yield tax is less than 100% and depends on the social value of forest stands, timber price risk and properties of compensated timber supply. In the general case the 'inverse elasticity rule’ – according to which the optimal yield tax is negatively related to the size of the substitution effects – may not hold. Under certainty, the desirability of the yield tax, given the optimal site productivity tax, depends only on the existence of public goods characteristic and is thus a pure Pigouvian tax. Copyright Kluwer Academic Publishers 1997

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    Bibliographic Info

    Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

    Volume (Year): 10 (1997)
    Issue (Month): 1 (July)
    Pages: 41-62

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    Handle: RePEc:kap:enreec:v:10:y:1997:i:1:p:41-62

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    Web page: http://www.springerlink.com/link.asp?id=100263

    Related research

    Keywords: multiple-use forests; timber supply; optimal forest taxation;

    References

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    1. Diamond, Peter A & Yaari, Menahem, 1972. "Implications of the Theory of Rationing for Consumer Choice Under Uncertainty," American Economic Review, American Economic Association, vol. 62(3), pages 333-43, June.
    2. Max, Wendy & Lehman, Dale E., 1988. "A behavioral model of timber supply," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 71-86, March.
    3. Hartman, Richard, 1976. "The Harvesting Decision When a Standing Forest Has Value," Economic Inquiry, Western Economic Association International, vol. 14(1), pages 52-58, March.
    4. Jeffrey R. Vincent & Clark S. Binkley, 1993. "Efficient Multiple-Use Forestry May Require Land-Use Specialization," Land Economics, University of Wisconsin Press, vol. 69(4), pages 370-376.
    5. Swallow Stephen K. & Wear David N., 1993. "Spatial Interactions in Multiple-Use Forestry and Substitution and Wealth Effects for the Single Stand," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 103-120, September.
    6. Strang, William J, 1983. "On the Optimal Forest Harvesting Decision," Economic Inquiry, Western Economic Association International, vol. 21(4), pages 576-83, October.
    7. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    8. Snyder, Donald L. & Bhattacharyya, Rabindra N., 1990. "A more general dynamic economic model of the optimal rotation of multiple-use forests," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 168-175, March.
    9. Englin, Jeffrey E. & Klan, Mark S., 1990. "Optimal taxation: Timber and externalities," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 263-275, May.
    10. Koskela, Erkki, 1984. "On the effects of differentiated income taxation on portfolio selection," Economics Letters, Elsevier, vol. 16(1-2), pages 145-150.
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    Cited by:
    1. Couture, Stéphane & Reynaud, Arnaud, 2011. "Forest management under fire risk when forest carbon sequestration has value," Ecological Economics, Elsevier, vol. 70(11), pages 2002-2011, September.
    2. Marielle Brunette & Stéphane Couture & Eric Langlais, 2009. "Amenities and Risk in Forest Managemen," Working Papers - Cahiers du LEF 2009-01, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
    3. Aronsson, T. & Blomquist, S., 1999. "On Environmental Taxation Under Uncertainty," Papers 1999:14, Uppsala - Working Paper Series.
    4. Olivier Damette & Philippe Delacote, 2009. "The environmental resource curse hypothesis: the forest case," Working Papers - Cahiers du LEF 2009-04, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
    5. Marielle Brunette & Stephane Couture & Eric Langlais, 2007. "Hedging Strategies in Forest Management," Working Papers - Cahiers du LEF 2007-07, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
    6. Sylvain Caurla & Philippe Delacote & Franck Lecocq & Ahmed Barkaoui, 2009. "Fuelwood consumption, restrictions about resource availability and public policies: impacts on the French forest sector," Working Papers - Cahiers du LEF 2009-03, Laboratoire d'Economie Forestiere, AgroParisTech-INRA.
    7. Erkki Koskela & Markku Ollikainen, 2001. "Optimal Forest Taxation under Private and Social Amenity Valuation," CESifo Working Paper Series 409, CESifo Group Munich.
    8. Amacher, Gregory S. & Koskela, Erkki & Ollikainen, Markku, 2002. "Optimal Forest Policies in an Overlapping Generations Economy with Timber and Money Bequests," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 346-369, September.
    9. Markku Ollikainen, 1998. "Sustainable Forestry: Timber Bequests, Future Generations and Optimal Tax Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(3), pages 255-273, October.
    10. Maria A. Cunha-e-Sa & Sofia F. Franco, 2013. "The Effects of Land-Use Development Policies on Forest Management," FEUNL Working Paper Series wp576, Universidade Nova de Lisboa, Faculdade de Economia.

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