IDEAS home Printed from https://ideas.repec.org/p/csa/wpaper/2021-11.html
   My bibliography  Save this paper

Income Inequality and Happiness: Which Inequalities Matter n China?

Author

Listed:
  • John Knight
  • Ramani Gunatilaka

Abstract

The effect of inequality on happiness should intrigue social scientists. Of the many dimensions of income inequality, we explore four, analysing a rich data set for China. Does actual or perceived inequality have a greater effect on happiness? We find that perceptions of inequality are the more important. How broad is the reference group with which people compare themselves? They report that it is narrow; and indeed narrowly defined inequality has the greater effect on happiness. Do perceptions of the degree of fairness of inequality matter? They do, as they ameliorate the adverse effect of inequality on happiness, especially for the poorest. Is it self-centred or community-based inequality which affects happiness? Both measures have significant effects, but in opposite directions. The research and policy implications are discussed.

Suggested Citation

  • John Knight & Ramani Gunatilaka, 2021. "Income Inequality and Happiness: Which Inequalities Matter n China?," CSAE Working Paper Series 2021-11, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2021-11
    as

    Download full text from publisher

    File URL: https://ora.ox.ac.uk/objects/uuid:b40e3822-d654-4991-8532-b2c493141fe6
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kingdon, Geeta Gandhi & Knight, John, 2007. "Community, comparisons and subjective well-being in a divided society," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 69-90, September.
    2. Smith, Adam, 1759. "The Theory of Moral Sentiments," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1759.
    3. 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.
    4. Andrew E. Clark & Claudia Senik, 2014. "Happiness and Economic Growth: Lessons from Developing Countries," Post-Print halshs-01109063, HAL.
    5. Christopher F Baum & Arthur Lewbel, 2019. "Advice on using heteroskedasticity-based identification," Stata Journal, StataCorp LP, vol. 19(4), pages 757-767, December.
    6. John Knight & Ramani Gunatilaka, 2017. "Is Happiness Infectious?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(1), pages 1-24, February.
    7. Christopher T. Dawes & James H. Fowler & Tim Johnson & Richard McElreath & Oleg Smirnov, 2007. "Egalitarian motives in humans," Nature, Nature, vol. 446(7137), pages 794-796, April.
    8. Knell, Markus & Stix, Helmut, 2020. "Perceptions of inequality," European Journal of Political Economy, Elsevier, vol. 65(C).
    9. Albert O. Hirschman & Michael Rothschild, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic DevelopmentWith A Mathematical Appendix," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(4), pages 544-566.
    10. Benjamin Schalembier, 2019. "An Evaluation of Common Explanations for the Impact of Income Inequality on Life Satisfaction," Journal of Happiness Studies, Springer, vol. 20(3), pages 777-794, March.
    11. Layard, Richard & Mayraz, Guy & Nickell, Stephen, 2009. "Does relative income matter? Are the critics right?," LSE Research Online Documents on Economics 28594, London School of Economics and Political Science, LSE Library.
    12. Bjørnskov, Christian & Dreher, Axel & Fischer, Justina A.V. & Schnellenbach, Jan & Gehring, Kai, 2013. "Inequality and happiness: When perceived social mobility and economic reality do not match," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 75-92.
    13. Andrew E. Clark & Conchita d'Ambrosio, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," PSE Working Papers halshs-00967938, HAL.
    14. C. Graham & S. Pettinato, 2002. "Frustrated Achievers: Winners, Losers and Subjective Well-Being in New Market Economies," Journal of Development Studies, Taylor & Francis Journals, vol. 38(4), pages 100-140.
    15. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
    16. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    17. Vladimir Gimpelson & Daniel Treisman, 2018. "Misperceiving inequality," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 27-54, March.
    18. John Knight & Ramani Gunatilaka, 2019. "Memory and Anticipation of Income: New Empirical Support for an Old Theory of the Utility Function," Manchester School, University of Manchester, vol. 87(5), pages 694-723, September.
    19. Cruces, Guillermo & Perez-Truglia, Ricardo & Tetaz, Martin, 2013. "Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment," Journal of Public Economics, Elsevier, vol. 98(C), pages 100-112.
    20. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    21. 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.
    22. Paolo Brunori, 2017. "The Perception of Inequality of Opportunity in Europe," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(3), pages 464-491, September.
    23. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    24. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2099-2123, August.
    25. Engelhardt, Carina & Wagener, Andreas, 2014. "Biased Perceptions of Income Inequality and Redistribution," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100395, Verein für Socialpolitik / German Economic Association.
    26. E.Clark, Andrew & Senik, Claudia (ed.), 2014. "Happiness and Economic Growth: Lessons from Developing Countries," OUP Catalogue, Oxford University Press, number 9780198723653, Decembrie.
    27. John Knight, 2017. "Fair and unfair inequality in China," Economic and Political Studies, Taylor & Francis Journals, vol. 5(3), pages 256-265, July.
    28. Fredrik Carlsson & Gautam Gupta & Olof Johansson-Stenman, 2009. "Keeping up with the Vaishyas? Caste and relative standing in India," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 52-73, January.
    29. Markus Knell & Helmut Stix, 2021. "Inequality, perception biases and trust," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 801-824, December.
    30. Lester C. Thurow, 1971. "The Income Distribution as a Pure Public Good," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(2), pages 327-336.
    31. John E. Roemer & Alain Trannoy, 2015. "Chapter 4 - Equality of Opportunity," Post-Print hal-01456129, HAL.
    32. John Knight & Ramani Gunatilaka, 2010. "The Rural-Urban Divide in China: Income but Not Happiness?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(3), pages 506-534.
    33. John Knight & Bianjing Ma & Ramani Gunatilaka, 2022. "The Puzzle of Falling Happiness despite Rising Income in Rural China: Eleven Hypotheses," Economic Development and Cultural Change, University of Chicago Press, vol. 70(3), pages 1103-1131.
    34. Adrian R Pagan & Anthony D Hall, 1983. "Diagnostic tests as residual analysis," Published Paper Series 1983-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    35. Yang, Xiuna & Gustafsson, Björn & Sicular, Terry, 2021. "Inequality of opportunity in household income, China 2002–2018," China Economic Review, Elsevier, vol. 69(C).
    36. Knight, John & Gunatilaka, Ramani, 2010. "Great Expectations? The Subjective Well-being of Rural-Urban Migrants in China," World Development, Elsevier, vol. 38(1), pages 113-124, January.
    37. Elizabeth Tricomi & Antonio Rangel & Colin F. Camerer & John P. O’Doherty, 2010. "Neural evidence for inequality-averse social preferences," Nature, Nature, vol. 463(7284), pages 1089-1091, February.
    38. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
    39. Kuhn, Andreas, 2015. "The Individual Perception of Wage Inequality: A Measurement Framework and Some Empirical Evidence," IZA Discussion Papers 9579, Institute of Labor Economics (IZA).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Zheng-Xin & Jv, Yue-Qi, 2023. "Revisiting income inequality among households: New evidence from the Chinese Household Income Project," China Economic Review, Elsevier, vol. 81(C).
    2. John Knight & Ramani Gunatilaka, 2023. "The Quality of Society and Happiness: Fairness, Trust, and Community in China," Economics Series Working Papers 1000, University of Oxford, Department of Economics.
    3. Peihua Deng & Ronnie Schöb, 2022. "Group-Specific Redistribution, Inequality, and Subjective Well-Being in China," CESifo Working Paper Series 9847, CESifo.
    4. Boulton, Thomas J., 2023. "Property rights and access to equity capital in China," Global Finance Journal, Elsevier, vol. 55(C).
    5. Qi Zhou & Jun Chen & Shanqing Liu & Fengxiu Zhou & Huwei Wen, 2024. "Pollution Control and Well-Being in Rural Areas: A Study Based on Survey Data," Sustainability, MDPI, vol. 16(3), pages 1-16, February.
    6. Xu, Tao & Zhu, Weiwei, 2021. "Eudemonia and Freedom: A Bibliometric Research on Frontiers and Evolution of Labour and Employment in China," MPRA Paper 112908, University Library of Munich, Germany, revised 30 Mar 2022.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Knight & Ramani Gunatilaka, 2020. "Income inequality and happiness: perceived or actual, widely or narrowly defined, fair or unfair, self- or community-centred inequality?," Economics Series Working Papers 922, University of Oxford, Department of Economics.
    2. repec:hal:spmain:info:hdl:2441/3ile1g7sqe8kfpi2d1e7jp82im is not listed on IDEAS
    3. Godechot, Olivier & Senik, Claudia, 2015. "Wage comparisons in and out of the firm. Evidence from a matched employer–employee French database," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 395-410.
    4. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    5. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute of Labor Economics (IZA).
    6. Olivier Godechot & Claudia Senik, 2015. "Wage comparisons in and out of the firm," PSE-Ecole d'économie de Paris (Postprint) halshs-01314331, HAL.
    7. Alpaslan Akay & Gökhan Karabulut & Peter Martinsson, 2013. "The effect of religiosity and religious festivals on positional concerns -- an experimental investigation of Ramadan," Applied Economics, Taylor & Francis Journals, vol. 45(27), pages 3914-3921, September.
    8. Akay, Alpaslan & Bargain, Olivier B. & Giulietti, Corrado & Robalino, Juan D. & Zimmermann, Klaus F., 2016. "Remittances and relative concerns in rural China," China Economic Review, Elsevier, vol. 37(C), pages 191-207.
    9. AMENDOLA, Adalgiso & DELL'ANNO, Roberto & PARISI, Lavinia, 2015. "Happiness, Inequality and Relative Concerns in European Countries," CELPE Discussion Papers 136, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    10. Fischer, Justina A. V. & Torgler, Benno, 2007. "Social Captial and Relative Income Concerns: Evidence from 26 Countries," Berkeley Olin Program in Law & Economics, Working Paper Series qt8sv0k59c, Berkeley Olin Program in Law & Economics.
    11. Li, Linyang, 2018. "Financial inclusion and poverty: The role of relative income," China Economic Review, Elsevier, vol. 52(C), pages 165-191.
    12. John Knight & Ramani Gunatilaka, 2017. "Is Happiness Infectious?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(1), pages 1-24, February.
    13. Akay, Alpaslan & Bargain, Olivier & Zimmermann, Klaus F., 2012. "Relative concerns of rural-to-urban migrants in China," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 421-441.
    14. Olivier Godechot & Claudia Senik, 2015. "Wage comparisons in and out of the firm," SciencePo Working papers Main halshs-01314331, HAL.
    15. Gimpelson, V. & Chernina, E., 2020. "How we perceive our place in income distribution and how the perceptions deviate from reality," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 30-56.
    16. Woo Chang Kang & Jae Seung Lee & BK Song, 2020. "Envy and Pride: How Economic Inequality Deepens Happiness Inequality in South Korea," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 150(2), pages 617-637, July.
    17. Nikolaev, Boris, 2016. "Does other people's education make us less happy?," Economics of Education Review, Elsevier, vol. 52(C), pages 176-191.
    18. Senik, Claudia, 2009. "Direct evidence on income comparisons and their welfare effects," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 408-424, October.
    19. Jinan Zeidan, 2015. "Are Comparisons Luxuries? Subjective Poverty and Positional Concerns in Indonesia," AMSE Working Papers 1505, Aix-Marseille School of Economics, France.
    20. Kaizhi Yu & Yun Zhang & Hong Zou & Chenchen Wang, 2019. "Absolute Income, Income Inequality and the Subjective Well-Being of Migrant Workers in China: Toward an Understanding of the Relationship and Its Psychological Mechanisms," IJERPH, MDPI, vol. 16(14), pages 1-27, July.
    21. Alpaslan Akay & Lisa Andersson & Peter Martinsson & Haileselassie Medhin, 2014. "Positional Concerns among the Poor: Does Reference Group Matter? Evidence from Survey Experiments," Journal of African Economies, Centre for the Study of African Economies, vol. 23(5), pages 673-699.

    More about this item

    Keywords

    China; Happiness; Inequality; Reference group; Relative;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:csa:wpaper:2021-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Julia Coffey (email available below). General contact details of provider: https://edirc.repec.org/data/csaoxuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.