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Vertical and Horizontal Inequality in Ecuador: The Lack of Sustainability

  • Ivan Gachet
  • Diego F. GrijalvaEmail author
  • Paúl A. Ponce
  • Damián Rodríguez
Article

Abstract

We analyse the evolution of vertical and horizontal inequality in Ecuador in the long-run (1990–2016), as well as during and after the recent commodities boom (2005–2014). Using data from censuses, living standard measurement surveys, and employment surveys we show that Ecuador has made significant progress in reducing inequality, particularly since 2000. However, inequality has not decreased further since 2011. We argue that a key factor behind the reduction and ensuing stagnation of inequality is the dynamic of oil revenues, particularly regarding its effect on economic growth and on the financing of redistributive policies. Using the decomposition of the Gini coefficient by income source proposed by Lerman and Yitzhaki (Rev Econ Stat 67:151–156, 1985) we show that during the last decade there has been a shift away from market sources towards sources of income derived from government expenditures. Following the end of the commodities boom, this process is no longer sustainable. Indeed, we show that the underlying causes that led to the change in the sources of income started long before the end of the boom. The temporary shock following the 2008 financial crisis already affected the structure of Ecuador’s public finances and its current account. And, since around 2011, its institutions and labour market indicators have also deteriorated. We conclude that sustainable inequality reductions require improving the current institutions.

Keywords

Ecuador Horizontal inequality Vertical inequality Commodities boom Sustainability 

Notes

Acknowledgements

We thank the United Nations University World Institute for Development Economics Research (UNU-WIDER) for financial support. We also thank Carla Canelas, Rachel Gisselquist, Johanna Andrango, participants at the Group-based Inequalities: Patterns, Trends Within and Across Countries Project Workshop in Helsinki, and two anonymous referees for helpful comments and suggestions. All remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect those of UNU-WIDER.

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© UNU-WIDER 2017 2017
corrected publication February 2019

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Authors and Affiliations

  1. 1.International Independent ConsultantQuitoEcuador
  2. 2.USFQ Business School, School of Economics, and Instituto de EconomíaUniversidad San Francisco de Quito USFQQuitoEcuador
  3. 3.Secretaría Nacional de Planificación y Desarrollo SENPLADESQuitoEcuador
  4. 4.Université Paris 1 Panthéon-SorbonneParisFrance

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