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Tuesday, 22 November 2016
The United States-Canada softwood lumber trade: An actual versus optimal export tax
Published Date December 2016, Vol.73:112–119, doi:10.1016/j.forpol.2016.08.00 Author
Rajan Parajuli a,,
Sudipta Sarangi b,
Sun Joseph Chang c,
R. Carter Hill d,
aSchool of Renewable Natural Resources, Louisiana State University, Baton Rouge, LA 70803, USA
bDepartment of Economics, Virginia Tech University, Blacksburg, VA 24061, USA
cSchool of Renewable Natural Resources, Louisiana State University Agricultural Center, Baton Rouge, LA 70803, USA
dDepartment of Economics, Louisiana State University, Baton Rouge, LA 70803, USA
Received 11 May 2016. Revised 10 July 2016. Accepted 30 August 2016. Available online 15 September 2016. Highlights
We develop a two-country two-stage game model to examine the lumber trade between the USA and Canada.
The capacity-constraint scenario of the U.S. domestic lumber industry is taken into account.
Canadian production costs and the U.S. lumber production capacity are main determinants of the optimal export tax.
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%.