Forestry Investment Incentives in the South: 
A Review of Empirical Research on Cost-Sharing 
and the 
Reforestation Tax Credit and Amortization 
Jack P. Royer (1) 
Introduction 
The draft report entitled "The South's Fourth 
Forest" concludes on page 38 that "achieving the 
economic potential to grow a fourth forest in the 
South will require action to expand [programs Of] 
protection, technical and financial assistance, re- 
search, education, and management" [my empha- 
sis]. Two public financial incentives directly affect- 
ing forestry investment are the Federal reforestation 
tax credit and amortization (hereafter the reforesta- 
tion tax incentives) and cost-sharing under one of 
three Federal programs--the Forestry Incentives 
Program (FIP), the Agricultural Conservation Pro- 
gram (ACP), and the Conservation Reserve Pro- 
gram (CRP)--or 13 State programs, 7 of which are 
found in the South. These "direct" financial incen- 
tives can be distinguished from other incentives by 
their requirement that landowners undertake specif- 
ic forestry investments, such as tree planting, in 
order to qualify. Public financial incentives such as 
the capital gains treatment of timber income, the 
preferential assessment of forest properties, and 
the expensing of management costs improve the 
financial position of forest landowners but do not 
require specific forestry practices, in particular refor- 
estation. (2) 
The central aim of this paper is to survey our 
knowledge of the effects of cost-sharing and refor- 
estation tax incentives on landowner investment de- 
cisions. The review does not include studies of the 
cost effectiveness or social efficiency of the incen- 
(1) Jack P. Royer is Associate Professor, School of Forestry 
and Environmental Studies, Duke University, Durham, NC. 
(2) The distinction between direct and indirect financial incen- 
tives is made here strictly for the purpose of clarifying the 
scope of this paper. Distinguishing between these types of 
incentives is not intended as a reflection of their relative 
importance. 
tive programs; instead the paper concentrates on a 
series of recent modeling efforts that have used 
econometric methods to isolate determinants of the 
forestry investment behavior of landowners. The pa- 
per first summarizes the current provisions and re- 
cent accomplishments of Federal and State cost- 
share programs and the reforestation tax in- 
centives. It then highlights the results of the 
empirical research on landowner investment behav- 
ior and discusses the significance of the findings of 
that research in light of recommendations in "The 
South's Fourth Forest" to expand financial assis- 
tance programs. 
Direct Financial Incentives 
The reforestation tax credit and amortization 
were enacted into law on October 14, 1980, as a 
rider to the Recreational Boating and Facilities Im- 
provement Act (P.L. 96-451). These so-called "Pack- 
wood amendments" joined cost-sharing under FIP 
as the major Federal financial incentives intended 
specifically to encourage tree planting. FIP was es- 
tablished in 1973 by the Agriculture and Consumer 
Protection Act (P.L. 93-86). It was modeled after the 
Agricultural Conservation Program, a cost-share 
program dating to 1945 and modified in the early 
1950's to allow forestry practices. Both the Forestry 
Incentives Program and the ACP can be used for 
tree planting; the primary difference between the 
programs is their goals. The Forestry Incentives Pro- 
gram is intended to increase forest production; ACP 
is intended to conserve soil and water. The Conser- 
vation Reserve Program, like ACP, is a soil conser- 
vation program. It was created by the Food Security 
Act of 1986 to remove highly erodible cropland from 
Cultivation. 
Under the reforestation tax incentives, as modi- 
fied by the Tax Equity and Fiscal Responsibility Act 
of 1982, all persons who plant trees after Decem- 
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