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The United States-Canada softwood lumber trade: An actual versus optimal export tax

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  • Parajuli, Rajan
  • Sarangi, Sudipta
  • Chang, Sun Joseph
  • Hill, R. Carter

Abstract

By developing a two-country two-stage game model, this study examines an optimal level of export tax under the framework of the 2006 United States (U.S.)-Canada Softwood Lumber Agreement (SLA 2006). The theoretical results suggest that marginal lumber production costs in Canada and U.S. lumber production capacity along with linear demand parameters determine an optimum rate of export tax on Canadian lumber exports to the U.S. The empirical estimation reveals that the monthly optimal export tax during the SLA 2006 period follows the actual export tax closely with a monthly rate ranging from −4% to 19%.

Suggested Citation

  • Parajuli, Rajan & Sarangi, Sudipta & Chang, Sun Joseph & Hill, R. Carter, 2016. "The United States-Canada softwood lumber trade: An actual versus optimal export tax," Forest Policy and Economics, Elsevier, vol. 73(C), pages 112-119.
    • Handle: RePEc:eee:forpol:v:73:y:2016:i:c:p:112-119
    DOI: 10.1016/j.forpol.2016.08.009
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    1. Cheng Hsiao, 1997. "Statistical Properties of the Two-Stage Least Squares Estimator Under Cointegration," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 385-398.
    2. Giridhar Myneni & Jeffrey H. Dorfman & Glenn C. W. Ames, 1994. "Welfare Impacts of the Canada-U.S. Softwood Lumber Trade Dispute: Beggar Thy Consumer Trade Policy," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 42(3), pages 261-271, November.
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    4. Song, Nianfu & Chang, Sun Joseph & Aguilar, Francisco X., 2011. "U.S. softwood lumber demand and supply estimation using cointegration in dynamic equations," Journal of Forest Economics, Elsevier, vol. 17(1), pages 19-33, January.
    5. Devadoss, Stephen, 2008. "An Evaluation of Canadian and U.S. Policies of Log and Lumber Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(1), pages 1-14, April.
    6. Henry W. Kinnucan & Daowei Zhang, 2004. "Incidence of the 1996 Canada–U.S. Softwood Lumber Agreement and the Optimal Export Tax," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 52(1), pages 73-88, March.
    7. Devadoss, Stephen, 2008. "An Evaluation of Canadian and U.S. Policies of Log and Lumber Markets," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 171-184, April.
    8. van Kooten, G. Cornelis & Johnston, Craig, 2014. "Global impacts of Russian log export restrictions and the Canada–U.S. lumber dispute: Modeling trade in logs and lumber," Forest Policy and Economics, Elsevier, vol. 39(C), pages 54-66.
    9. Nen-Jing Chen & Glenn C. W. Ames & A. Lawton Hammett, 1988. "Implications of a Tariff on Imported Canadian Softwood Lumber," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 36(1), pages 69-81, March.
    10. Devadoss, Stephen, 2006. "Is There an End to U.S.-Canadian Softwood Lumber Disputes?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(1), pages 1-17, April.
    11. Parajuli, Rajan & Zhang, Daowei & Chang, Sun Joseph, 2016. "Modeling stumpage markets using vector error correction vs. simultaneous equation estimation approach: A case of the Louisiana sawtimber market," Forest Policy and Economics, Elsevier, vol. 70(C), pages 16-19.
    12. Devadoss, Stephen, 2006. "Is There an End to U.S.–Canadian Softwood Lumber Disputes?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 38(1), pages 137-153, April.
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    Cited by:

    1. Johnston, Craig M.T. & Parajuli, Rajan, 2017. "What's next in the U.S.-Canada softwood lumber dispute? An economic analysis of restrictive trade policy measures," Forest Policy and Economics, Elsevier, vol. 85(P1), pages 135-146.
    2. Johnston, Craig M.T. & van Kooten, G. Cornelis, 2017. "Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach," Forest Policy and Economics, Elsevier, vol. 74(C), pages 71-80.
    3. Ying Lin & Henry W. Kinnucan, 2020. "The optimal export tax for a primary commodity in a vertical market," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 909-922, November.

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    More about this item

    Keywords

    Softwood lumber; Optimal export tax; Softwood Lumber Agreement 2006; Two-stage game;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment

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