Coffee is an important crop for the Dominican Republic, accounting for an average of 11 percent of total exports by value during 1982-84. But for the last 10 years, coffee yields have been low, and production and exports stagnant. If current policies for coffee continue, production and exports are likely to decline even further and the Dominican Republic could have trouble filling its export quota under the International Coffee Agreement (ICA). This paper sees the high tax on coffee exports as the main disincentive to growth in coffee production. With a small econometric model of the Dominican coffee sector, the paper simulates the impact of export tax reductions under different assumptions about the operation of the ICA export quota system. The model suggests that if the ICA is continued, an export tax cut of 52 percent would produce the desired production level (to meet projected quota and nonquota export demand) by 2000. If the ICA is discontinued, the export tax must be eliminated to achieve the same production level.
