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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

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  • Ricardo Arguello

    ()

  • Ketty Rivera

Abstract

We quantify the effects on poverty and income distribution in Ecuador of bilateral trade liberalization with the US and a budget-neutral value added tax increase which seeks to compensate tariff revenue losses. We stress the study of fiscal policies that the government could tap in order to compensate for tariff revenue loss. This is a very important issue for Ecuador because this country adopted the US dollar as its currency in 2000, forgiving the use of important policy instruments. To study these issues we combine a reduced-form micro household income and occupational choice model (using 2005/6 data from the Ecuadorian LSMS) with a standard single-country computable general equilibrium model (employing a 2004 SAM). We follow 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 distribution is small but positive.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 004367.

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Length: 50
Date of creation: 25 Nov 2007
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Handle: RePEc:col:000092:004367

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  1. Maurizio Bussolo & Jann Lay, 2003. "Globalisation and Poverty Changes in Colombia," OECD Development Centre Working Papers 226, OECD Publishing.
  2. Sherman, Robinson & Robilliard, Anne-Sophie & Bourguignon, François, 2005. "Representative versus real households in the macro-economic modelling of inequality," Economics Papers from University Paris Dauphine 123456789/4535, Paris Dauphine University.
  3. André Fargeix & Elisabeth Sadoulet, 1990. "A Financial Computable General Equilibrium Model for the Analysis of Ecuador's Stabilization Programs," OECD Development Centre Working Papers 10, OECD Publishing.
  4. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
  5. Rob Vos & Niek De Jong, 2003. "Trade Liberalization and Poverty in Ecuador: A CGE Macro-Microsimulation Analysis," Economic Systems Research, Taylor & Francis Journals, vol. 15(2), pages 211-232.
  6. John Cockburn, 2004. "Trade Liberalisation and Poverty in Nepal A Computable General Equilibrium Micro Simulation Analysis," Development and Comp Systems 0409012, EconWPA.
  7. Go, Delfin S. & Kearney, Marna & Robinson, Sherman & Thierfelder, Karen, 2005. "An Analysis of South Africa's Value Added Tax," Policy Research Working Paper Series 3671, The World Bank.
  8. Löfgren, Hans & Harris, Rebecca Lee & Robinson, Sherman, 2001. "A standard computable general equilibrium (CGE) model in GAMS," TMD discussion papers 75, International Food Policy Research Institute (IFPRI).
  9. Carolina Sanchez-Paramo, 2005. "Poverty in Ecuador," World Bank Other Operational Studies 10333, The World Bank.
  10. Robilliard, Anne-Sophie & Robinson, Sherman, 2005. "The social impact of a WTO agreement in Indonesia," Policy Research Working Paper Series 3747, The World Bank.
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