Assessment of the Impacts of an Inheritance Taxation Relief on the Profitability of Forest Investments

The place and importance of forest biomass production is widely recognized in natural resources and energy policy in many countries. However, for a part of them, including France, the forest belongs mainly to private owners. Consequently, fiscal policy, including inheritance taxes, is an essential tool to orient biomass production. France is one of the countries where an inheritance tax is levied. In the case of forests, given the slow production cycle, this means that each tree is taxed several times before it reaches maturity. This situation could discourage the practice of forestry. For this reason, a tax abatement has been introduced, which consists of taxing forests at only one-quarter of their value in the calculation of the inheritance tax. This abatement is subject to a commitment to good management for 30 years. Thus not all forests benefit from it. In this work, we intend to quantify this advantage when it is attributed, so that the interested parties can compare it to the costs and inconveniences of the commitment, and above all, to estimate the additional profitability that it provides to the forest compared to other investment alternatives, all other things being equal. To this end, we set up a demographic model to represent the inheritance sequence and an economic model with the current tax rates. In the end, we find that this tax rebate is a good incentive to invest in the forest, and therefore to produce more biomass on the long term and a good incentive to produce the significant positive externalities associated with the presence of forests.