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Abstract

A model of public cost sharing of non-industrial private forestry investment is proposed to describe substitution between non-industrial private financing of investments and public investment assistance. Substitution depends in the curvature condition of forest investment function on forest stock. When the second order investment effects are close to zero or when they do not exist, the funding substitution will not take place. Simultaneous econometric model for non-industrial private and public funding with forest incomes, forest income taxes, interest rates, investment scale, and market wood price expectations as exogenous variables is estimated. The model estimation with Finnish regional data in period 1983-2000 rejects the substitution alternative. A 10% increase in non-industrial private investment funding increases public funding demand with same rate but a 10% increase of public funds increases the private funds supply 2.4%. Significant income effects are found only for non-industrial private funding. In northern Finland scale effects are large for public financial assistance. Interest rate and price expectation effects are large for public financial assistance. Interest rate and price expectations effects are negative.

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