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

Abstract

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 a priori. 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.