The political economy of timber taxation: The case of Ghana Christian P. Hansen ⁎, Jens F. Lund Danish Centre for Forest, Landscape and Planning, Faculty of Life Sciences, University of Copenhagen, Rolighedsvej 23, 1958 Frederiksberg C, Denmark abstract article info Article history: Received 6 January 2011 Received in revised form 7 June 2011 Accepted 15 June 2011 Available online 31 July 2011 Keywords: Forest Rent Africa Concession Fiscal We analyze the political economy of timber taxation in Ghana. Our results show that politicians maintain control over allocation of timber rights, that taxation constitutes an insignificant share of the value of the timber resource, and that the distribution of timber revenues hardly contributes towards the official forest policy justifications. Our analysis suggests that politicians wield control over rent-seeking opportunities that are exchanged for political support through patron–client networks. This speaks to a larger literature on why governments waste resources and constitutes an argument for increased attention to the political economy underlying natural resource policies. © 2011 Elsevier B.V. All rights reserved. 1. Introduction More than 80% of the forest area in tropical developing countries is under central government administration (FAO, 2006). For forests with timber production, this is typically organized under a concession regime, i.e. a contract between the government and another party, typically a private company, permitting the harvest of specified resources from a given area in return for fees and taxes. Yet, studies of timber taxation in developing countries have consistently revealed a low level of taxes relative to the value of the harvest under such regimes. This results in scarceness of revenues available for financing of forest management and conservation, and few contributions from the forest sector towards broader societal objectives such as poverty reduction and economic growth (Oksanen, 2004). Further, low pricing induces inefficiencies in resource use by concessionaires and wood processing firms leading to further deforestation (Richards, 1995; Karsenty, 2000). Timber fiscal reforms have been pursued, frequently with donor support, but scholars have consistently portrayed a low tax take relative to the value of the resource (Repetto and Gillis, 1988; Vincent, 1990; Grut et al., 1991; Gray, 2002; FAO, 2002; Barbone and Zalduendo, 2000; Kim et al., 2006; Oksanen, 2004; Colchester et al., 2006; Krelove and Melhado, 2010; Palmer and Bulkan, 2010). This apparent paradox invokes a larger literature that focuses on why governments waste natural resources. Various explanations for this conundrum have been put forward. In some cases, low official forest rent capture has been attributed to war and civil unrest, e.g. in the case of Liberia (Renner, 2005; Schwidrowski and Thomas, 2005). In other cases, it is attributed to ignorance, lack of information or irrational behavior of politicians and centrally located bureaucrats (Ross, 1999; Grut et al., 1991; Gray, 2002; Hardner and Rice, 1999). It accords with neo-classical economic theory, which assumes that actors in markets are rational, while those in political arenas are not. Yet, such differentiation is theoretically problematic and generally not supported empirically (Bates, 1983; Ross, 1999). Or, as formulated by William Ascher: “When we focus on the most important natural resources, involving millions or even billions of dollars of resource rent, it is rarely plausible that top government officials would not devote sufficient attention and expertise to understanding the implications of natural-resource policy options” (Ascher, 1999: 28). Yet again other scholars attribute low official forest rent capture to lack of administrative capacity, i.e. inability to implement and enforce legislation (Merry and Amacher, 2005; Contreras-Hermosilla and Peter, 2005; Richards et al., 2003; Amacher, 2006; Tacconi, 2007). These two explanations appear to provide the rationale for most efforts of bilateral and international donor agencies to reform forest fiscal regimes 1 (Oksanen, 2004). Other scholars explain inefficient taxation regimes, and indeed other forest policies, as choices made in response to organized political pressure, notably by the timber industry. Board (1995) suggests that in Indonesia a few large timber conglomerates have captured the policy making process, which has resulted in low fees, Forest Policy and Economics 13 (2011) 630–641 ⁎ Corresponding author. Tel.: + 45 3533 1735; fax: + 45 3533 1508. E-mail address: cph@life.ku.dk (C.P. Hansen). 1 Recommendations typically involve a shift from stumpage fees/royalties to area based fees set by competitive bidding or a combination of an area based fee with other taxation instruments (Hardner and Rice, 1999; Gray, 2002; Karsenty, 2000). Governments that are revenue constrained may choose strategies that enhance the harvest and reduce the taxation level (Merry and Amacher, 2005; Amacher, 1999). Governments faced with illegal logging and corruption may assign royalty rates at below the socially optimal level to reduce the incentives for evasion (Amacher et al., 2007). 1389-9341/$ – see front matter © 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.forpol.2011.06.011 Contents lists available at ScienceDirect Forest Policy and Economics journal homepage: www.elsevier.com/locate/forpol