Stretching the Inelastic Rubber: Taxation, Welfare and Lobbies in Amazonia, 1870-1910

Abstract

This paper examines the effect of government intervention via taxation on domestic welfare. A case-study of Brazilian market power on rubber markets during the boom years of 1870-1910 shows that the government generated 1.3% of GDP through an export tax on rubber but that it could have generated 4.7% in total, had the government set the tariff at the optimal level. National, regional and local constraints prevented the government from maximizing regional welfare. In a context of lobbies, government budget maximization may have differed from regional welfare maximization.Rubber, Commodities, Market Power, Optimal Tariff, Welfare, Trade and Brazil.