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Income Comparisons among Neighbours and Life Satisfaction in East and West Germany

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  • Gundi Knies

Abstract

A series of studies have suggested that changes in others’ income may be perceived differently in post-transition and capitalist societies. This paper draws on the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics in very tightly drawn neighbourhoods to investigate whether reactions to changes in their neighbours’ income divide the German nation. We find that the neighbourhood income effect for West Germany is negative (which is in line with the ‘relative income’ hypothesis) and slightly more marked in neighbourhoods that may be assumed to be places where social interactions between neighbours take place. In contrast, the coefficients on neighbourhood income in East Germany are positive (which is consistent with the 'signalling' hypothesis), but statistically not significant. This suggests not only that there is a divide between East and West Germany, but also that neighbours may not be a relevant comparison group in societies that have comparatively low levels of neighbouring.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 298.

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Length: 23 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp298

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Keywords: Comparison income; Reference group; Life Satisfaction; Neighbourhood effects;

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References

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  1. Mike Shields & Mark Wooden, 2003. "Investigating the Role of Neighbourhood Characteristics in Determining Life Satisfaction," Melbourne Institute Working Paper Series wp2003n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. 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.
  3. Knies, Gundi & Burgess, Simon & Propper, Carol, 2007. "Keeping up with the Schmidts: an empirical test of relative deprivation theory in the neighbourhood context," ISER Working Paper Series 2007-19, Institute for Social and Economic Research.
  4. Gundi Knies, 2009. "The Effects of Mobility on Neighbourhood Social Ties," SOEPpapers on Multidisciplinary Panel Data Research 175, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  6. 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.
  7. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Jan Goebel & C. Katharina Spieß & Nils R. J. Witte & Susanne Gerstenberg, 2007. "Die Verknüpfung des SOEP mit MICROM-Indikatoren: Der MICROM-SOEP Datensatz," Data Documentation 26, DIW Berlin, German Institute for Economic Research.
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  12. Clark, Andrew E. & Diener, Ed & Georgellis, Yannis & Lucas, Richard E., 2006. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," IZA Discussion Papers 2526, Institute for the Study of Labor (IZA).
  13. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  14. Stephen Gibbons & Stephen Machin, 2008. "Valuing school quality, better transport, and lower crime: evidence from house prices," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 99-119, spring.
  15. Guglielmo Maria Caporale & Yannis Georgellis & Nicholas Tsitsianis & Ya Ping Yin, 2007. "Income and Happiness across Europe: Do Reference Values Matter?," CESifo Working Paper Series 2146, CESifo Group Munich.
  16. Michael Shields & Stephen Wheatley Price & Mark Wooden, 2009. "Life satisfaction and the economic and social characteristics of neighbourhoods," Journal of Population Economics, Springer, vol. 22(2), pages 421-443, April.
  17. 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.
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Cited by:
  1. Runli Xie, 2010. "Consumption Growth and Volatility with Consumption Externalities," SFB 649 Discussion Papers SFB649DP2010-057, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.

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