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Abstract

The widespread use of State Trading Enterprises (STEs) in international trade of commodities is often justified by price-stabilizing objectives. In investigating the theoretical underpinnings of such interventions, we point out that STEs combine the possibility to stabilise domestic prices with the opportunity to redistribute custom duty proceeds to producers. Using a two-country general equilibrium model with import STEs, we show that global welfare is maximized when a non-zero, non-prohibitive tariff is applied. Whatever the restriction on the border, letting farmers be the only recipients of tariff revenues is optimal, because it allows income insurance to be provided.

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