Babahoyo and Quito are the best and worst cities in terms of economic freedom, respectively. This is indicated by the first edition of the Index of Economic Freedoms of Ecuadorian Cities (ILECE – EC), published by the Foundation for Citizenship and Development and sponsored by USAID. The report shows the indicators of 13 Ecuadorian cities with more than 100,000 inhabitants, which are also the capitals of the provinces and have more than 11 points in the transparency index.

Thus, the study establishes at least four categories of economic freedom: Moderate, Acceptable, Insufficient and Insufficient. They are evaluated with 100 points in four areas: economic performance of the municipality, size of the municipal workforce, municipal economic interventionism and fiscal pressure.

Babahoyo (70.29) is in the first category. Babahoyo is the best-rated city, but it is still 30 points short of full economic freedom. It stands out because it has the smallest debt per inhabitant, 24 dollars compared to other cities that exceed 400 dollars, in addition, it stands out because it is the city with the smallest collection of fines and sanctions against citizens, and is below the average in terms of rates and taxes applied to economic activities. Despite the positive assessment, it is the city that registers the fewest domiciled companies, around 5,000.

They are followed by Riobamba (66.95), Latacunga (64.14), Tulcán (61.97) and Ambato (61.69). According to the order, the cities that are in the middle category are: Guayaquil (55.52), Esmeraldas (54.07), Loja (52.26) and Machala (51.51) have acceptable economic freedom; while Ibarra, Portoviejo and Cuenca are in insufficient freedom.

In the last category is Quito with only 35.86 points. The city with weak economic freedom was rated the worst. Its debt per capita is USD, above the average of USD 271. It is the city that collects the most fees and taxes, it is the city that collects the most property taxes and is the second city with the highest tax pressure on economic activities, only behind Cuenza. Quito is the city with the most utility personnel, as well as the most utility companies.

According to Citizenship and Development, the goal of the report is to provide citizens, the private sector, civil society and decision makers with indicators of economic freedom in cities in four areas related to municipal economic performance, the size of the municipal staff, its intervention in the economy and the fiscal pressure it applies.

Furthermore, say the authors, the goal is for the indicators in question to generate an orderly and evidence-based discussion about the municipal economic policy of Ecuadorian cities, which, in certain cases, is the one that positively or negatively affects the economy, freedom and life of citizens.

Among the conclusions of the report is that none of the cities covered by the research reaches the level of full economic freedom. Of the 13 evaluated cities, none exceeded 70 points. Most of them have significant levels of debt, which, in theory, could increase tax revenues for citizens, although this does not necessarily translate into an improvement in quality of life.

Regarding the size of the municipal workforce, most cities have a range of municipal employees that is within the average range. However, Quito stands out by recording extremely high figures in this regard, which could imply a greater ability to control production activities, but could also generate more bureaucracy and more significant collection.

Regarding the degree of economic interventionism of municipalities, most cities have an average of about 3 utility companies. However, Quito and Cuenca stand out in moving away from this figure by registering 8 to 12 local public companies, reflecting a higher level of interventionism in areas that could traditionally be managed by the private sector, such as cleaning, solid waste and transportation.

In relation to the municipal tax pressure, it was observed that most cities have a high tax pressure and at the same time have a limited number of domiciled companies. However, some cities with a low tax burden also fail to attract more businesses, which could be due to other factors such as paperwork and bureaucracy.

Faced with data, Citizenship and Development recommends that local governments work with the private sector, civil society and academia to evaluate cities’ economic and fiscal policies based on data and hard evidence.

It is proposed to reduce the tax pressure on economic activities and promote the headquarters of new companies in cities in order to stimulate economic growth and improve the quality of life in cities. It is important to think about the significant reduction in the collection of fines and penalties and to assess whether this policy effectively reduces non-compliance or has actually become a kind of additional “tax”. It is necessary to implement measures that improve the transparency of budget management at the local level.