ABSTRACT
This chapter explores the role of providing the quantitative information necessary for a more informed debate over the likely impact of processing incentives in New Zealand. The effect of the decrease in the price of forestry that the export tax causes on the forestry and wood processing industries is significant. The response of the wood products industry to the export tax is more substantial, a rise in output of nearly 13 percent in the short run, and 45 percent in the long run. A more useful measure of the welfare changes can be obtained by using a compensation function. The compensating variation takes the post-change prices and asks what income change would be needed to compensate the consumer for the price change. The equivalent variation takes the pre-change prices and asks what income change at current prices would be equivalent to the proposed change.
