Sustainable forestry: Timber bequests, future generations and optimal tax policy

This paper analyzes harvesting and timber bequest behavior in a two-period overlapping generations model where the government uses site productivity, yield and inheritance taxation. The ceteris paribus effects of forest and i nheritance taxes are derived first, then the paper discusses the optimal de sign of forest and inheritance taxes by assuming that intergenerational ext ernalities are either absent or operative. In the absence of intergeneratio nal externalities, it is optimal to use only the site productivity tax, and not to introduce yield and inheritance taxes at all. In the presence of in tergenerational externalities the situation changes. The paper demonstrates that the externality can be internalized by introducing either a yield tax or an inheritance subsidy, or both. If the government is able to use both at the same time, it is desirable to use the yield tax to 'punish' excessiv e harvesting and an inheritance subsidy to 'bribe' to give bequests.