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Poverty impacts of increased openness and fiscal policies in a dollarized economy: a CGE-micro approach for Ecuador

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  • Sara Wong
  • Ricardo Arguello
  • Ketty Rivera

Abstract

We quantify the effects on poverty and income distribution in Ecuador of bilateral tradeliberalization with the US and a budget-neutral value added tax increase which seeks to compensatetariff revenue losses. We stress the study of fiscal policies that the government couldtap in order to compensate for tariff revenue loss. This is a very important issue for Ecuadorbecause this country adopted the US dollar as its currency in 2000, forgiving the use of importantpolicy instruments. To study these issues we combine a reduced-form micro householdincome and occupational choice model (using 2005/6 data from the Ecuadorian LSMS) with astandard single-country computable general equilibrium model (employing a 2004 SAM). Wefollow a sequential approach that simulates the full distributional impact of trade and tax policies.We find that the impact of these policy changes on extreme poverty and income distributionis small but positive.

Suggested Citation

  • Sara Wong & Ricardo Arguello & Ketty Rivera, 2007. "Poverty impacts of increased openness and fiscal policies in a dollarized economy: a CGE-micro approach for Ecuador," Documentos de Trabajo 4367, Universidad del Rosario.
    • Handle: RePEc:col:000092:004367
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F15 - International Economics - - Trade - - - Economic Integration
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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