Effects of tax incentives on long-run capital formation and total factor productivity growth in the Canadian sawmilling industry

The goal of this study was to analyze effects of tax incentives on long-run dynamics of total factor productivity (TFP) growth and capital formation in the Canadian sawmilling industry over a 40-year period (1961-2000). Simulated tax incentives involved increasing capital cost allowance and investment tax credit and reducing corporate income tax. The production technology was specified as a function of capital, labor, energy, sawlogs, and a time dependent technological progress variable. A translog multilateral index number model was applied to measure and analyze TFP. Two analytical phases were followed. In the first phase, without the tax incentives, we analyzed annual levels and growth rates of TFP1; and parametrically examined effects of output growth and time dependent technology on the growth of TFP1. Over the study period, the average annual growth rate of TFP1 was 2%; and the parametric results revealed that the marginal effects of each of output growth and technological progress on TFP1 growth were highly significant. The second phase involved recalculation of the rental price of capital to estimate effects of the simulated tax incentives on capital formation and growth of TFP (= TFP2). As expected, the average annual share of capital in total cost with the tax incentives rose to 12% from 9% without the tax incentives. The average annual capital intensity also rose to real $15,263.70 with the incentives from real$10,402.91 without the incentives. Most importantly, higher capital formation, motivated by the tax incentives, raised aggregate quantity of the inputs significantly, leading to a slightly lower TFP2 than TFP1, because output was unchanged. In short, the data validated the hypothesis that tax incentives do indeed spur capital formation and TFP growth.Tax incentives Capital intensity Technological progress Technical efficiency Competitiveness

FACTOR DEMAND IN THE SAWMILL INDUSTRY OF THE LAKE STATES

This study examined the production structure of the sawmilling industry of the Lake States (Michigan, Minnesota and Wisconsin) in order to determine elasticities of substitution and elasticities of demand. A homogeneous translog cost function was estimated using pooled time-series data for the period 1963-1996 with inputs labor, materials and capital. Based on the model selection process, the estimated model imposes constant returns to scale and allows for nonunitary elasticities of substitution amongst the inputs. The hypothesis of constant returns to scale could not be rejected at the 1% level. This was common for studies of the sawmill industry but seems particularly common to regions where the industry was made up primarily of small mills. Constant returns to scale in a mature sawmill industry would lead to the outcome of mills of similar size as all economies of scale have been exhausted and the industry has settled into an equilibrium firm size near the minimum of the long run average cost curve. Nevertheless, this does not explain why the average mill size in the Lake States is small compared to the Pacific Northwest and Southeastern U.S. Results for the Allen Partial Elasticity of Substitution (AES) indicate that labor and materials were inelastic substitutes with an elasticity of 0.76 while labor and capital were elastic complements with an elasticity of -1.38. Materials and capital were also inelastic substitutes and had an elasticity of substitution of 0.80. The labor/materials elasticity of substitution is high compared to almost all studies of softwood lumber producing regions. The Morishima Elasticity of Substitution (MES) results indicate that labor/materials, materials/labor, materials/capital, capital/materials and labor/capital were inelastic substitutes with the greatest substitutability between labor/materials. The MES for capital/labor was -0.017 indicating a complementary relationship. The own-price elasticities of demand were all inelastic and negative indicating downward sloping demand curves. All other elasticities were inelastic and indicate that materials was a substitute for labor and capital but labor and capital were complements. Changes in the price of materials had a relatively large, but inelastic, effect on the demand for capital with a cross-price elasticity of 0.51. Changes in the price of labor also had a relatively large effect on the demand for capital, but in a complementary fashion, with an elasticity of -0.44. Changes in the price of materials had a greater effect on the demand for labor than the other way around with cross-price elasticities of 0.48 and 0.24, respectively

FACTOR DEMAND IN THE SAWMILL INDUSTRY OF THE LAKE STATES

This study examined the production structure of the sawmilling industry of the Lake States (Michigan, Minnesota and Wisconsin) in order to determine elasticities of substitution and elasticities of demand. A homogeneous translog cost function was estimated using pooled time-series data for the period 1963-1996 with inputs labor, materials and capital. Based on the model selection process, the estimated model imposes constant returns to scale and allows for nonunitary elasticities of substitution amongst the inputs. The hypothesis of constant returns to scale could not be rejected at the 1% level. This was common for studies of the sawmill industry but seems particularly common to regions where the industry was made up primarily of small mills. Constant returns to scale in a mature sawmill industry would lead to the outcome of mills of similar size as all economies of scale have been exhausted and the industry has settled into an equilibrium firm size near the minimum of the long run average cost curve. Nevertheless, this does not explain why the average mill size in the Lake States is small compared to the Pacific Northwest and Southeastern U.S. Results for the Allen Partial Elasticity of Substitution (AES) indicate that labor and materials were inelastic substitutes with an elasticity of 0.76 while labor and capital were elastic complements with an elasticity of -1.38. Materials and capital were also inelastic substitutes and had an elasticity of substitution of 0.80. The labor/materials elasticity of substitution is high compared to almost all studies of softwood lumber producing regions. The Morishima Elasticity of Substitution (MES) results indicate that labor/materials, materials/labor, materials/capital, capital/materials and labor/capital were inelastic substitutes with the greatest substitutability between labor/materials. The MES for capital/labor was -0.017 indicating a complementary relationship. The own-price elasticities of demand were all inelastic and negative indicating downward sloping demand curves. All other elasticities were inelastic and indicate that materials was a substitute for labor and capital but labor and capital were complements. Changes in the price of materials had a relatively large, but inelastic, effect on the demand for capital with a cross-price elasticity of 0.51. Changes in the price of labor also had a relatively large effect on the demand for capital, but in a complementary fashion, with an elasticity of -0.44. Changes in the price of materials had a greater effect on the demand for labor than the other way around with cross-price elasticities of 0.48 and 0.24, respectively.Agribusiness,

Expanding Bioenergy Opportunities from Working Forests and Rangelands

As fossil fuel prices rise, so does the interest in developing alternative sources of energy. Working forests and rangelands are a major source of raw material being considered for applications ranging from direct combustion to ethanol production. Across the U.S., woody biomass energy is being studied for its potential to contribute to economic development and the revitalization of forest and range dependent communities.This article is from The Cooperative Extension Service 2011. Posted with permission.</p

Family Forest Owner Management Decisions for Participants Enrolled in a Forest Property Taxation Program in Michigan

Family forest owners affect the ecosystem services that forests provide and, thus, their management decisions are of interest to the forestry sector. There are many programs available to help family forest owners reduce the management costs, some of which involve a reduced tax burden in exchange for active management. Research Highlights: this study is the first to examine the family forest owners enrolled in a statewide forest property taxation program in Michigan in order to understand how parcel characteristics affect management decisions. Background and Objectives: the goal is to understand the relationships between parcel characteristics and family forest owner management decisions for these program enrollees. Materials and Methods: a dataset of enrollment information was compiled and cleaned, which resulted in 20,915 unique forest stands in the state. Key variables analyzed via multinomial regression include stand condition, size, density, forest types, and forest practices. Results: region, forest type, and stand size significantly predicted forest practices. Conclusions: given that stand and parcel characteristics significantly predict forest practice, it may be useful to use these data, rather than self-reported management data from the owners themselves in order to understand future management trajectories of private forests. These data also describe forest practices of enrollees in a tax program, demonstrating that the program is successfully incentivizing management and shedding light on how these programs can promote conservation and stewardship of private forests