Taxation, bequests, and short and long run timber supplies: An overlappinggenerations problem

This paper uses an overlapping generations model with one-sided altruism to study the effects of several forest taxes that target bequests and affect timber supply. Unlike previous work, we investigate bequests and timber sup ply in both the short and long run when bequests are costly (e.g., taxed). The landowner's problem is examined in the short run, while the government' s problem is examined in the long run assuming the existence of a steady st ate. We also consider taxes targeting harvests, growth, savings and bequest s. Several new results are established concerning the interactions of taxes that might be used by a government to alter short and long run forest capi tal stocks: (i) the presence of a forest bequest tax affects the neutrality of harvest tax in both the short and long run, (ii) in the long run the be quest tax decreases bequests and timber supplies. When the bequest tax is n ot present, the capital income tax is neutral with respect to bequest and t imber supply, while the harvest tax is neutral only if forest productivity is also not taxed. Finally, (iii) in the short run, the substitution and to tal effects of taxes in landowner decisions generally depend on the presenc e of the bequest tax. The results have implications for Pigouvian tax desig n and second best tax choice.