Taxation and rotation age under stochastic forest stand value

The paper uses both the single rotation and ongoing rotation framework to study the impact of yield tax, lump-sum tax and tax on interest rate earnings on the privately optimal rotation period when forest stand value is stochastic and forest owners are risk averse or risk neutral. Under risk aversion the optimal harvesting threshold is lower and therefore the expected rotation period shorter than under risk neutrality both in the single and ongoing rotation cases. Whether the forest owner is risk averse or risk neutral, a higher yield tax, a higher lump-sum tax or a higher tax on interest rate earnings raise the optimal harvesting threshold. Numerical results indicate that the optimal harvesting threshold increases less rapidly under risk aversion than under risk neutrality with an increase in either a yield tax or the volatility of forest stand value.