Evaluation of the Fiscal Efficiency of the Diesel Subsidy in Ecuador During the Period 2007–2025
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Abstract
Fossil fuel subsidies represent one of the greatest distortions to public finances in developing countries, due both to their cost and to the market inefficiencies they generate. This research analyzed the fiscal efficiency of the diesel subsidy in Ecuador during the period 2007–2025, evaluating whether its allocation was optimal compared to social returns in health and education. For this purpose, a quantitative fiscal accounting model was used that incorporated three measures: fiscal cost, opportunity cost, and Marginal Fiscal Efficiency (MFE).
The results obtained showed that the Ecuadorian State spent around 64 billion dollars on the diesel subsidy during the study period, which represented 2.4% of annual GDP; likewise, an MFE close to zero was obtained for this type of fuel, compared to social returns of 1.65 in education and 1.46 in health. It is important to point out that, under the paradigm of Total Carbon Pricing (TCP), these subsidies become a “negative carbon price,” which promotes excessive consumption and benefits higher-income deciles to a greater extent, confirming their regressivity. Therefore, it is important to consider redirecting these resources to ensure fiscal sustainability and social welfare.
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