THE INCIDENCE OF FOREST TAXE

This thesis analyzes, theoretically and empirically, the general equilibrium incidence of forest taxes. In Chapter 1 we show that almost all previous forest taxation studies utilize partial equilibrium frameworks, and demonstrate how their standard forest taxation impacts can be modified by tax shifting. This implies that a general equilibrium model may be a superior method to analyze forest taxes. Chapter 2 develops this general equilibrium model by postulating an alternative model of forestry economics in which labor is an input in production: planting labor, to proxy for management intensity, and harvesting labor, to consider the largest employment field in forestry. Foresters choose these labor quantities by simultaneously selecting their optimal rotation length and planting density. We then derive expressions for the theoretical general equilibrium incidence of forest taxes by using our alternative model as one of the sectors in a standard two-sector incidence model.;Our alternative model contains demand functions for planting and harvesting labor, as well as timber output functions. In Chapter 3 we estimate these functions using standard linear estimation techniques and Washington State data. These estimated equations and selected parameter values are used in Chapter 4 to simulate both the partial and general equilibrium incidence of forest taxes, for the special case of natural reseeding of Douglas fir. Our general equilibrium results show the impact of the yield tax, the severance tax, the property tax on land, and the timber property tax on forestry output prices, land values, and the quantity of labor and land devoted to forestry. These results indicate that the property tax on timber induces very large distortions per dollar of tax revenue raised, while simultaneously creating unnecessary burdens for landowners. We conclude that the timber property tax should be abolished because other forestry taxes can raise equal tax revenue streams at a lower cost to society.