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Brazilian coffee export tax rebates reduced the prices of their competitors’ coffees, though it
seems likely that the system including the relative supply variable provides better estimates.

It is worth emphasizing that the econometric results are wholly consistent with the
hypotheses of the paper. The OLS estimates and the Three Stage Least Squares estimates are
highly consistent. Both indicate that the provision of export tax rebates caused an increase in the
gross price of Brazilian coffee on the New York market when an export quota was in effect, in
1965-71 and 1980-86, but had no effect on this price in 1972-79, when no export quota existed.

The Incidence of Export Tax Rebates. If the results presented here are broadly
accurate, foreign roasters gained greatly from Brazil’s emission of export tax rebates. Using the
3SLQ results, the rebates raised the gross export price by about $0.50/lb for each $1.00/lb unit
export tax rebate during the period 1980-88, providing a reduction in the net price of about
$0.50/lb. The same effect appears to have occurred during 1965-71, but this result is less
important since a relatively small amount of rebates were issued in this period. If we consider
only the effect of the $5.9 billion in export tax rebates issued in 1980-88, Brazil transferred $2.95
billion of its domestic quota rents to foreign importers.25 Roasters’ profits must have increased
and foreign consumers probably also benefited as a result of competition among roasters. The
rebates significantly reduced Brazil’s net export tax revenue. Indeed, Brazil’s net export tax
revenue was negative in 1980 and 1981.

Brazil’s use of export tax rebates also significantly distorted international coffee prices.
The rebates increased the gross New York price of Brazilian coffee absolutely and relatively and
may have reduced, in absolute terms, the international coffee prices of Brazil’s competitors. As
an approximate indicator of this effect, Figure 3 shows the estimated absolute increase in the

equations explaining PSANTOS and PCOMPETITOR. The coefficients on Alpha were essentially unchanged.

25 I exclude 1987 since a quota was not in effect during most of the year and 1988 since the amount of rebates

22



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