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Fiscal sustainability and dollarization: the case of Ecuador

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  • María Lorena Marí Del Cristo
  • Marta Gómez-Puig

Abstract

This article tries to disentangle the dynamic relationships between fiscal variables and economic activity in a small emerging economy characterized by full dollarization, namely, Ecuador. We find that fiscal policy in Ecuador seems to be sustainable, explained by its policy of debt payment through oil revenues, rather than by a fiscal discipline that dollarization is supposed to encourage. The non-oil tax revenues variable is a purely adjusting variable. This result suggests that in a dollarized country that cannot benefit from the ‘seignorage’ revenues, the reliance on volatile oil revenues and on smoothing tax revenues leaves the economy’s fiscal sustainability vulnerable.

Suggested Citation

  • María Lorena Marí Del Cristo & Marta Gómez-Puig, 2016. "Fiscal sustainability and dollarization: the case of Ecuador," Applied Economics, Taylor & Francis Journals, vol. 48(23), pages 2139-2155, May.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:23:p:2139-2155
    DOI: 10.1080/00036846.2015.1114580
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    1. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
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    Cited by:

    1. Koráb, Petr & Fidrmuc, Jarko & Dibooglu, Sel, 2023. "Growth and inflation tradeoffs of dollarization: Meta-analysis evidence," Journal of International Money and Finance, Elsevier, vol. 137(C).

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