The Importance of Fiscal measures in Financial Incentives for Land Use Decisions

The question of what motivates decisions to change land use or farm management practices has recently received much attention in the context of designing policies to incentivise change. This paper critically analyses aspects of the prevailing incentive policies for a long-term land use change such as farm afforestation, with a view to identifying how financial and fiscal components of income influence the land use change desision. The analysis finds that from a household welfare perspective, the inclusion of benefits and taxation in calculating relative life-cycle incomes from forestry and agriculture, provides additional information relevant to the incentivisation of farm afforestation. From the policy makers perspective, this analysis illustrates how benefits can be very significant at the bottom of the income distribution whereas taxation narrows the gap at the top of the distribution. At the lower end of the distribution, the analysis shows that low-income farms could acually be worse-off as a result of planting. The importance of such fiscal instruments has long been recognised in labour market decisions, but may well have to be considered as part of future financial incentives if the conversion of land from agriculture to forestry remains a policy priority in the overall climate change context. Acknowledgement :