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A Behavioral and Welfare Analysis of Progressive Forest Taxation

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Microsoft Word - kansi.doc Keskusteluaiheita – Discussion papers No. 862 Erkki Koskela* – Markku Ollikainen** A BEHAVIORAL AND WELFARE ANALYSIS OF PROGRESSIVE FOREST TAXATION*** Forthcoming in: Canadian Journal of Forest Research * Department of Economics, P.O. Box 54, Fin-00014 University of Helsinki, Finland, and the Research Department of the Bank of Finland, P.O. Box 160, 00101 Helsinki, Finland. E-mail: [email protected] ** Department of Economics and Management, P.O. Box 27, Fin-00014 University of Helsinki, Finland. E-mail: [email protected] *** We would like to thank three anonymous referees as well as an associate editor for helpful comments. This paper is a part of the project “Studies in Environmental and Re- source Economics” financed by the Academy of Finland. The funding is gratefully ac- knowledged. Koskela thanks the Research Department of the Bank of Finland and CESifo at the University of Munich for their hospitality. ISSN 0781-6847 05.08.2003 ETLA ELINKEINOELÄMÄN TUTKIMUSLAITOS THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY Lönnrotinkatu 4 B 00120 Helsinki Finland Tel. 358-9-609 900 Telefax 358-9-601 753 World Wide Web: http://www.etla.fi/ KOSKELA, Erkki – OLLIKAINEN, Markku, A BEHAVIORAL AND WELFARE ANALYSIS OF PROGRESSIVE FOREST TAXATION. Helsinki: ETLA, Elinkeino- elämän Tutkimuslaitos, The Research Institute of the Finnish Economy, 2003, 24 p. (Keskusteluaiheita, Discussion Papers, ISSN 0781-6847; no. 862). ABSTRACT: We use the Hartman rotation model to study behavioral and social welfare effects of forest tax progression. The following new results are shown for harvest and tim- ber taxes. First, a tax-revenue neutral increase in the timber tax rate, compensated by a higher tax exemption, will shorten the optimal private rotation age. A sufficient condition for this to hold for the yield and unit taxes is that the marginal valuation

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