Fuel Subsidies in Ecuador: A Computable General Equilibrium Model for Targeting Evaluation

Fuel subsidies have been an enduring policy in Ecuador's political and economic history. Given their lack of targeting and high opportunity cost, they have been amply criticized. As of 2017, the Ecuadorian government started a budget consolidation plan that so far has involved seven reforms to subsidies policy in less than seven years. In late 2019, in response to social unrest motivated by a temporal elimination of fuel subsidies, the government pledged to study new targeting mechanisms for this policy to mitigate the impact on the most vulnerable sectors. This work seeks to contribute to that effort by evaluating the macroeconomic effects of these subsidies and serving as a guideline for targeting. A computable general equilibrium model is used to assess counterfactual scenarios. The results suggest that by implementing progressiveness and productive linkage criteria, targeting household final consumption and intermediate consumption is a feasible way to reduce the reforms' negative effects. Los subsidios a los combustibles han sido una pol & iacute;tica persistente en la historia pol & iacute;tica y econ & oacute;mica de Ecuador. Por su falta de focalizaci & oacute;n y alto costo de oportunidad, estos han sido ampliamente criticados. En 2017 el gobierno ecuatoriano comenz & oacute; un plan de consolidaci & oacute;n fiscal que hasta el momento ha incluido siete reformas a la pol & iacute;tica de subsidios en menos de siete a & ntilde;os. A finales de 2019, en respuesta al estallido social motivado por la eliminaci & oacute;n temporal de los subsidies a los combustibles, el gobierno se comprometi & oacute; a estudiar nuevos mecanismos de focalizaci & oacute;n para mitigar el impacto en los sectores m & aacute;s vulnerables. Este trabajo busca contribuir a este objetivo al evaluar los efectos macroecon & oacute;micos de estos subsidios para servir de gu & iacute;a para la focalizaci & oacute;n. Se utiliza un modelo de equilibrio general computable. Los resultados sugieren que, tras implementar criterios de progresividad y encadenamientos productivos, la focalizaci & oacute;n en el consumo final de los hogares y el consumo intermedio de las industrias es una alternativa plausible para reducir el impacto negativo de las reformas.