Current issue: 56(2)
The effects and relative efficiency of alternative forest taxes are analysed theoretically. The Fisherian two-period model of consumption, savings and timber harvesting is extended by incorporating the management intensity decision and deriving the concept of long-run timber supply. The effects of lump-sum (site productivity), realized income (yield) and ad valorem property taxes on short-run timber supply, management intensity, and long-run timber supply are established. As the core of the study, the alternative taxes are compared in order to determine the appropriate forest tax regime in terms of production efficiency. The efficiency criterion generally requires that the excess burden of taxation at any given tax revenue should be kept to a minimum. The study distinguishes between an initially undistorted economy and an economy with pre-existing distortions due to capital income taxation (interest charge deductions). When the effects on forest management decisions of forest and capital income taxes are considered as a whole, a neutral forest taxation is no longer efficient. The non-timber benefits of a forest are incorporated to examine the robustness of the tax results with respect to the objective function. Finally, forest tax issues specific to Finland are considered, and administrational and equity aspects are discussed.
The PDF includes a summary in Finnish.