Forest Taxation and Timber Supply under Price Uncertainty: Credit Rationing in Capital Markets

Abstract

Abstract This paper provides a detailed analysis of timber harvest decisions under price uncertainty and credit rationing. Under these circumstances the Fisherian separation theorem no longer holds. Instead, the harvesting decisions of forest owners depend on their consumption preferences. The implications of this nonseparability between consumption and harvesting decisions under credit rationing are developed for various individual forest taxes as well as for various changes in the structure of forest taxes, which will keep the government's tax revenues constant. The importance of credit rationing lies in the fact that the distribution of revenues between the current and future period affects harvesting decisions. Hence, the taxes and tax policies that affect this revenue distribution bring about liquidity effects, which may make the effects of taxes sharply different from those found in the presence of perfect capital markets. For. Sci. 35(1):160-172.