Función de reacción fiscal para Ecuador, 2000-2017 Ecuador’s fiscal reaction function over the 2000-2017 period

Abstract

The results of the balance of public finances in Ecuador, throughout its history, have been characterized by the accumulation of permanent fiscal deficits, which supposes a latent risk to fiscal sustainability. Under this problem, the objective of the research is to analyze the response of the primary results to changes in the stock of debt, through a reaction function, taking into account all the control variables specific to the Ecuadorian case. Additionally, the sustainability of public debt is evaluated in the long term, seeking to verify the hypothesis that the Ecuadorian Government adjusts its primary surplus, in response to changes in indebtedness; this would show that it would be complying with its intertemporal budget restriction. The main results obtained show an explosive behavior of public debt that causes fiscal fatigue, which endangers fiscal consolidation. Likewise, it was found that the fiscal policy during the aforementioned period, complies with the assumptions of the budget constraint, however, was weakly sustainable, corroborating in part, the results of the fiscal response function. These results highlight the need for a restructuring of flows and stocks in public finances.