Extreme Income Inequality in Ecuador – Dollarization, Commodity Price Boom, and Citizen Revolution

Despite growing interest in inequality in Latin America, long-term evidence for countries like Ecuador has remained limited, especially when it comes to capturing top incomes. This paper addresses that gap by constructing Ecuador’s first comprehensive Distributional National Accounts (DINA) series, covering 1990–2022.

Using a novel method that combines household surveys with detailed tax microdata, the study provides a more complete picture of income distribution over three decades marked by economic crises, dollarization, and commodity booms. It offers new insights into how inequality evolves in a small, resource-dependent economy subject to external shocks.

KEY FINDINGS:

• Extreme income concentration persists at the top. In 2022, the top 1% captured around 25% of pretax income, while Ecuador ranks highest in Latin America for income share held by the top 0.1%.
• Bottom 50% gains remain limited. Despite some progress, the bottom 50% captured only around 12% of post-tax income in 2022, highlighting persistent inequality.
• Middle class sees little relative improvement. The middle 40% experienced only marginal gains over three decades, benefiting less from economic expansion than lower-income groups during key periods.
• Inequality trends depend strongly on economic regimes. Periods such as dollarization (2000) and the commodity price boom (2004–2014) shaped income distribution, with temporary reductions in inequality during phases of strong redistribution.
• Redistributive capacity has weakened in recent years. Gains achieved during the commodity boom have been partly reversed following the COVID-19 pandemic, as fiscal capacity declined.
• Institutions shifted—but remain fragile. Ecuador appears to have moved from a more extractive system in the 1990s toward a partially inclusive one during the commodity boom, but this equilibrium has weakened in recent years.
• New data reveals higher inequality than previously estimated. By incorporating tax data and correcting for the “missing rich,” the study finds that top income concentration has been consistently underestimated in earlier research.

AUTHOR

• Markus Nabernegg – University of Giessen, Germany