Journal of Forest Economics > Vol 29 > Issue 2

Incidence of Russian log export tax: A vertical log-lumber model

Ying Lin, , yzl0109@auburn.edu Daowei Zhang, , zhangd1@auburn.edu
 
Suggested Citation
Ying Lin and Daowei Zhang (2017), "Incidence of Russian log export tax: A vertical log-lumber model", Journal of Forest Economics: Vol. 29: No. 2, pp 69-77. http://dx.doi.org/10.1016/j.jfe.2017.09.003

Published: 0/12/2017
© 0 2017 Ying Lin, Daowei Zhang
 
Subjects
 
Keywords
Log export taxVertical marketWelfare analysisMuth-type equilibrium displacement modelFactor substitution
 

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In this article:
Introduction
Graphical analysis
Model
Parameter estimation and model calibration
Simulation
Conclusions

Abstract

In 2007, Russia imposed an ad valorem tax on its log exports that lasted until 2012. In this paper, we use a Muth-type equilibrium displacement model to investigate the market and welfare impacts of this tax, utilizing a vertical linkage between log and lumber markets and considering factor substitution. Our theoretical analysis indicates that, without considering the vertical linkage, the negative effects of log export tax on equilibrium price for log producers is underestimated when logs and processing services are gross substitutes, and the direction of bias is uncertain when they are gross complements. Empirical simulations show that the burden of Russian log export tax is shared almost equally between foreign log buyers and domestic log producers and that the tax increases domestic lumber production. Further, the marginal effect of the log export tax on domestic lumber production decreases as Russian domestic demand share of logs increases. Overall, the welfare gains for Russian lumber consumers, lumber producers in the form of quasi-rents to processing services, and tax revenue exceed the loss in its logging sector.

DOI:10.1016/j.jfe.2017.09.003