effects appear to have been wholly unintended and were misunderstood aspects of the use of
rebates.
The rebates were initially justified as a means to price discriminate and increase Brazil’s
coffee revenues (Delfim Netto and Andrade Pinto, 1965). Once this policy had come under fire,
rebates were justified as necessary to maintain the competitiveness of Brazilian coffee, given that
Brazil required exporters to pay export taxes and turn over foreign exchange reserves based on a
government-imposed Minimum Registration Price that sometimes exceeded the prices of
Brazil’s competitors (Bacha 1992). While the first justification for the rebates was theoretically
plausible, the number of rebates issued quickly grew to exceed the amount that could have been
economically justified as price discrimination, given known parameters of the coffee market.
The second justification was invalid since the Minimum Registration Price had little effect on the
price at which coffee was actually sold. Brazilian coffee was fully competitive without the export
tax rebates. The best explanation for the abundant emission of export tax rebates is that they
provided benefits to recipients, who engaged in rent-seeking activity to obtain more rebates.
Subsequent sections: 1) provide background information, 2) develop and apply a model
to test whether using the export tax rebates to price discriminate could have benefited Brazil, 3)
develop and econometrically estimate a model measuring the effect of the export tax rebates on
the export price of Brazil’s coffee and thus determine the incidence of the tax rebates, and 4)
present conclusions.
Background. Following a similar study in Indonesia (Bohman, et al. 1996), Bohman
and I interviewed a number of Brazilian coffee sector participants in June-July 1994, to obtain
information that would allow us to determine who had captured the ICA domestic quota rents in
Brazil. During these interviews, Brazilian coffee exporters frequently mentioned their dealings
al., 1993, as having occurred within the context of the Multi-Fibre Arrangement.