Fiscal policy and economic performance in dollarized countries: El Salvador, Panama and Ecuador between 2000-2022

Abstract

This article seeks to determine the behaviour of fiscal policy indicators in dollarized countries during the period 2000-2022 and the impact of these indicators on economic growth in: Panama, El Salvador and Ecuador. It is considered that, although all three countries are governed by dollarization, however, the results in terms of economic performance are dissimilar. In the period analysed, two major crises were experienced, the one of the world "crack" of 2008 and the one of covid-19, which strongly impacted in 2009 and 2020, respectively. By means of the fixed effects panel data model and the elasticity calculation, having as a variable dependent on economic growth, the theoretical relevance and statistical significance in fiscal variables is evidenced, such as: total government expenditure and tax revenues; also in other macroeconomic sectors such as exports, imports, gross fixed capital formation, as well as the interest rate as a control variable. The results validate the theoretical background; the objective of fiscal sustainability in the dollarized countries studied must go hand in hand with the participation of the State, both in aggregate demand and in regulating the interest rate.