Variation of federal cost-share programs in the United States and the inducement effects on tree planting

A long existing question associated with federal cost-share programs in the United States has been whether these public subsidies have induced or substituted for landowners’ private investment in tree planting. This study reexamined the relationship between public funding and private investment behavior in the past 50 years by employing a state space model with time-varying parameters. Three regions, i.e., the South, North, and West were formed and compared. The analysis revealed that the relationship has changed over time and across regions and both inducement and substitution effects have occurred. The inducement effect occurred in the South from 1960 to 1972 and in the West from 1961 to 2002 while the substitution effect was present for all other years in the South and West. In the North, there has been a strong substitution effect from 1951 to 2002.