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HOW BRAZIL TRANSFERRED BILLIONS TO FOREIGN COFFEE IMPORTERS: THE INTERNATIONAL COFFEE AGREEMENT, RENT SEEKING AND EXPORT TAX REBATES
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Abstract
Rent seeking is well known, but empirical evidence of its effects is relatively rare. This paper analyzes the how domestic and international rent seeking caused Brazil to provide coffee export tax rebates that transferred foreign exchange to coffee importers. Although Brazil was the worlds largest exporter, it began to pay export tax rebates to selected coffee importers in 1965 and, by 1988, had paid rebates totaling 8billion.BrazilexplainedtheserebatesasamechanismtopricediscriminateamongimportersandexpandexportswithinthecontextoftheexportquotaimposedbytheInternationalCoffeeAgreement.Weshowthisexplanationwasinvalidduringmostoftheperiod.Thenetpricefellforthosewhoreceivedrebates,causingBraziltoeffectivelytransferapproximately3 billion to foreign importers. The effects of the rebate policy were never recognized in Brazil, hidden largely by the complex nature of government intervention in the coffee sector.International Relations/Trade,