Optimal export taxes for exporters of perennial crops

Primary commodity prices are subject to substantial export taxes in a large number of developing countries. The purpose of this paper is to determine the optimal export tax for major exporters of cocoa, tea, coffee, and natural rubber -- the primary commodities most heavily taxed by developing countries. Since the estimate of the optimal export tax is based in part upon the estimate of the foreign elasticity of demand and the supply response from the rest of the world, the question arises whether it is the long-run elasticities or the short-run elasticities that are relevant to the tax setting behaviour. In making the decision, the choice arises between lower foreign exchange earnings in the short run and higher earnings later on or higher export earnings now and lower revenues later. It is hypothesized that those countries with a heavy dependence upon revenues from this source will tend to set the tax with respect to the short-run elasticities. It is shown here that the optimal tax will also depend upon the length of the adjustment period between the short run and the long run and the government's rate of time discount.