unit quota rent and did not constrain exports to the member market. Export tax rebates were
provided to “all” importers of Brazilian coffee. Assuming that the market was perfectly
competitive, Brazil’s nominal export price should have risen by the amount of the unit export tax
rebate, leaving the net export price unchanged. For example, let there be an initial situation in
which there is no export tax and no export tax rebate, where demand is set equal to a fixed
supply (the export quota), i.e., D(p) = x - βp = qA, with - β the slope of the demand curve. This
yields the initial equilibrium price, p0 = (x - qA)∕β. Then assume that an export tax rebate is paid
to importers so that it appears as a net reduction in the export price (as the avisos were paid):
D(p1 - α) = x - β(p1-α) = qA. The new equilibrium price is p1= (x - qA)/e + α, i.e., in a
competitive market the payment of the aviso reduces the price of Brazilian coffee relative to that
of other coffees and induces importers to increase the nominal amount paid for Brazilian coffee.
Since the export price rises by the amount of the export tax rebate, the importer enjoys no net
gain and Brazil suffers no real loss. However, if the market is not perfectly competitive,
importers may not bid up the nominal price by the full amount of the unit export tax rebate, in
which case importers enjoy a net gain and Brazil suffer a net loss.
During 1972-79, a somewhat different situation held since no export quota was in effect.
Brazil nonetheless imposed a substantial export tax. Since the export tax rebate was always paid
to the importer following the purchase, the world market price remained the purchase price from
the exporter’s viewpoint. The domestic producer price was determined in keeping with the price
received by the exporter, net of the gross coffee export tax. However, the foreign purchaser
effectively paid a price net of the export tax rebate, with the cost of the rebate being paid from
the Brazilian government’s coffee export tax revenues. Implementing an export tax rebate
associated with irregular activities among exporting firms.
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