Abstract:
This project analyzes the progressivity of the Personal Income Tax and its impact on fiscal sustainability and public debt in Ecuador over the period 2015–2024. The objective is to assess whether an increase in tax progressivity strengthens fiscal revenues and contributes to a sustainable debt trajectory, under the hypothesis that a progressive tax reform generates positive revenue effects without compromising macroeconomic stability. The study is motivated by the persistence of fiscal deficits and the growth of public debt.
The research combined microeconomic and macroeconomic approaches. A fiscal microsimulation model was used to estimate ex ante the revenue effects of changes in the tax structure, and these results were incorporated as exogenous shocks into a Vector Error Correction Model with exogenous variables (VECMX). The analysis was complemented with impulse response functions, projections, and sensitivity analysis.
The results show that increases in tax revenues have short-term contractionary effects on economic growth but contribute to reducing public debt in the medium term. In conclusion, tax progressivity can be a viable instrument to strengthen fiscal sustainability, taking into account institutional constraints.
Keywords: fiscal sustainability, public debt, fiscal microsimulation, econometric models, tax policy.
