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On the relation between income inequality and happiness: Do fairness perceptions matter?

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  • Bjørnskov, Christian
  • Dreher, Axel
  • Fischer, Justina A. V.
  • Schnellenbach, Jan

Abstract

In this paper, we revisit the association between happiness and inequality. We argue that the perceived fairness of the income generation process affects this association. Building on a two-period model of individual life-time utility maximization, we predict that persons with higher perceived fairness will experience higher levels of life-time utility and are less in favor of income redistribution. In societies with a high level of actual social mobility, income inequality is perceived more positively with increased expected fairness. The opposite is expected for countries with low actual social mobility, due to an increasing relevance of a disappointment effect resulting from unsuccessful individual investments. Using the World Values Survey data and a broad set of fairness measures, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the disappointment effect in low social mobility countries. In contrast, the results for high-mobility countries turn out to be ambiguous.

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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0495.

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Date of creation: 15 Jan 2010
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Handle: RePEc:awi:wpaper:0495

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Keywords: Happiness; life satisfaction; subjective well-being; inequality; income distribution; redistribution; political ideology; justice; fairness;

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References

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  1. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2008. "Cross-country determinants of life satisfaction: exploring different determinants across groups in society," Social Choice and Welfare, Springer, vol. 30(1), pages 119-173, January.
  2. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," Harvard Institute of Economic Research Working Papers 1936, Harvard - Institute of Economic Research.
  3. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  4. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Marklein, Felix & Sunde, Uwe, 2009. "Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample," Munich Reprints in Economics 20042, University of Munich, Department of Economics.
  5. Frey, Bruno S. & Stutzer, Alois, 2002. "Beyond Outcomes: Measuring Procedural Utility," Berkeley Olin Program in Law & Economics, Working Paper Series qt7qp9q1js, Berkeley Olin Program in Law & Economics.
  6. Irena Grosfeld & Claudia Senik, 2009. "The emerging aversion to inequality - Evidence from long subjective data," PSE Working Papers halshs-00586788, HAL.
  7. Hopkins, Ed, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," SIRE Discussion Papers 2008-01, Scottish Institute for Research in Economics (SIRE).
  8. Kohei Kawamura, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," ESE Discussion Papers 182, Edinburgh School of Economics, University of Edinburgh.
  9. Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does Relative Income Matter?: Are the Critics Right?," SOEPpapers on Multidisciplinary Panel Data Research 210, DIW Berlin, The German Socio-Economic Panel (SOEP).
  10. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  11. Fischer, Justina AV, 2009. "Subjective Well-Being as Welfare Measure: Concepts and Methodology," MPRA Paper 16619, University Library of Munich, Germany.
  12. Andrew E. Clark & Emanuela D'Angelo, 2013. "Upward Social Mobility, Well-being and Political Preferences: Evidence from the BHPS," CEP Discussion Papers dp1252, Centre for Economic Performance, LSE.
  13. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  14. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  15. Alberto Alesina & Rafael Di Tella & Robert MacCulloch, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," NBER Working Papers 8198, National Bureau of Economic Research, Inc.
  16. Corneo, Giacomo & Gruner, Hans Peter, 2002. "Individual preferences for political redistribution," Journal of Public Economics, Elsevier, vol. 83(1), pages 83-107, January.
  17. Justina A.V. Fischer, 2009. "The Welfare Effects of Social Mobility," OECD Social, Employment and Migration Working Papers 93, OECD Publishing.
  18. Ruut Veenhoven, 2000. "The Four Qualities of Life," Journal of Happiness Studies, Springer, vol. 1(1), pages 1-39, March.
  19. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  20. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, vol. 76(1), pages 87-104, April.
  21. Justina A.V. Fischer, 2009. "Happiness and Age Cycles - Return to Start...?: On the Functional Relationship between Subjective Well-Being and Age," OECD Social, Employment and Migration Working Papers 99, OECD Publishing.
  22. Fischer, Justina AV, 2009. "Happiness and age cycles – return to start…," MPRA Paper 15249, University Library of Munich, Germany.
  23. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Is Sweden too boring?
    by Ben Baumberg in inequalities on 2010-11-17 05:00:54
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Cited by:
  1. Arne Feddersen & Wolfgang Maennig, 2010. "Mega-Events and Sectoral Employment: The Case of the 1996 Olympic Games," Working Papers 035, Chair for Economic Policy, University of Hamburg.
  2. Falch, Torberg & Fischer, Justina A.V., 2012. "Public sector decentralization and school performance: International evidence," Economics Letters, Elsevier, vol. 114(3), pages 276-279.
  3. Simone Schneider, 2012. "Income Inequality and its Consequences for Life Satisfaction: What Role do Social Cognitions Play?," Social Indicators Research, Springer, vol. 106(3), pages 419-438, May.
  4. Justina A.V. Fischer & Alfonso Sousa-Poza, 2010. "The Impact of Institutions on Firms’ Rejuvenation Policies: Early Retirement with Severance Pay versus Simple Lay-Off. A Cross-European Analysis," Working Papers 034, Chair for Economic Policy, University of Hamburg.
  5. Fischer, Justina AV, 2009. "The Welfare Effects of Social Mobility: An Analysis for OECD countries," MPRA Paper 17070, University Library of Munich, Germany.

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