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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.