Institutional quality and life satisfaction in Latin America: insights from a within-between approach

This paper explores how institutional quality relates to subjective well-being in Latin America, a region often described by a ‘well-being paradox’: relatively high life satisfaction despite modest incomes and persistent governance problems. We test whether countries with stronger institutions report higher average life satisfaction and whether year-to-year changes in institutional quality are linked to contemporaneous changes in well-being. Combining individual survey data with country-year governance indicators, we estimate a multilevel within-between random-intercept model that separates long-run cross-country differences from short-run within-country dynamics. Results indicate that well-being is higher where Government Effectiveness and Rule of Law are stronger, and where Voice and Accountability and Political Stability provide a secure and participatory political environment. In contrast, short-term fluctuations in governance show limited effects, consistent with institutional persistence and slow adaptation. Education is a key moderator: more educated individuals display a stronger link between institutional quality and life satisfaction, with the association more consistent for within-country variation than for cross-country differences. Overall, the findings suggest that human capital improves citizens’ ability to perceive and respond to institutional quality, and that joint improvements in governance and education can yield sizable welfare gains.