Impacts of forest tax under timber price uncertainty

Abstract

We examine the effect of forest taxes on the optimal harvest decision and the forest land value using an adaptive optimization framework– the stand is harvested when the stumpage price is equal or higher than an age-dependent reservation price. We prove that the site value tax or site productivity tax does not change the optimal reservation prices; the timber value tax reduces the optimal reservation prices; the yield tax increases the optimal reservation prices when the non-timber benefits are increasing with stand age, or when they are independent of the stand age and the regeneration cost is positive; and the unit harvest tax increases the reservation prices when stand age is relatively high and could reduce the reservation price when stand age is low. Numerical results show that the optimal harvest age is only sensitive to the unit and timber value tax. The tax burden is reduced for all types of taxes except the site value tax. Under a taxation budget constraint, recognition of stumpage price uncertainty may change forest owners’ preferences for different types of taxes.