Inequality, Fiscal Policy and Satisfaction with the Government: Decomposition and Simulation

Government satisfaction rose sharply in Ecuador between 2007 and 2014, a period marked by declining inequality and substantial changes in fiscal and social policy. We examine how far this increase is associated with changes in individual economic circumstances, the wider income distribution, and the tax–benefit system. Using nationally representative household survey data, we combine distributional Fairlie decompositions with a tax–benefit microsimulation counterfactual. Changes in observed socioeconomic characteristics explain around one fifth of the increase in satisfaction in the middle of the distribution. Within this explained component, the decline in provincial income inequality is more important than changes in individual disposable income. The tax–benefit counterfactual points in the same direction: predicted satisfaction would generally have been lower had the 2014 population faced the 2007 tax–benefit rules. The results reveal substantial heterogeneity across income groups, with the counterfactual differences more pronounced among the poor. Overall, the findings highlight the importance of distinguishing individual economic resources from broader distributional conditions when examining evaluations of government.