Designing Forest Taxes with Varying Government Preferences and Budget Targets

A model of forest policy design is constructed to examine how government preferences affect the choice of forest taxes. Government preferences are modelled by assuming that the government faces a binding revenue constraint and cares about the provision of public goods from forests. The equilibrium is second best given the imposition of the revenue constraint on the governmentʹs decision making. Our results show that a revenue-constrained government will make different choices than a government that does not face revenue constraints. This has important implications for the choice of property and harvest taxes, as well as Pigouvian forest taxes.