Abstract

Over the past half century there has been a rapid expansion of the forestry sector in Chile. One hypothesis is that this growth was stimulated in major part by government-supported financial incentives to forestry plantations dating from the mid-1970s. Evaluating the effects of subsidies on plantations is of current policy interest due to the potential importance of forests as carbon sinks. This study evaluates the impact of subsidies on the establishment of forest plantations (under the specific law DL701) for the period between the years 1998 and 2013 using matching techniques in combination with Difference-in-Differences. Results show that government subsidies have had a statistically and economically significant positive impact on plantations, increasing the forested area of subsidy program participants by approximately 13% compared with the counterfactual scenario without such subsidies.