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Rethinking the Relative Income Hypothesis

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  • Cristina Blanco-Perez

Abstract

Income comparisons have been found to be important for individual health. However, the literature has so far looked solely at upward comparisons, disregarding the effects of comparisons with worse-off individuals. In this paper, I use a broad definition of relative income to test simultaneously for the effect of "upward" and "downward" income comparisons on health. Relative deprivation and relative satisfaction indexes are used to summarise upward and downward comparisons. Panel data models are used to correct for income endogeneity bias due to omitted variables. Using German Socio-Economic Panel data (SOEP), results show that relative deprivation has a positive effect, while relative satisfaction has a deleterious impact on health. These findings hold after correcting for unobserved heterogeneity and are robust to using quasi-objective health measures (but mental health) and to different reference groups.

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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 501.

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Length: 49 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp501

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Keywords: Relative deprivation; relative satisfaction; health;

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  1. Christopher F Baum, 2006. "An Introduction to Modern Econometrics using Stata," Stata Press books, StataCorp LP, StataCorp LP, number imeus, March.
  2. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
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  4. John P. Haisken-DeNew & Markus H. Hahn, 2010. "PanelWhiz - Efficient Data Extraction of Complex Panel Data Sets: An Example Using the German SOEP," Data Documentation 53, DIW Berlin, German Institute for Economic Research.
  5. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 004, Institute for Empirical Research in Economics - University of Zurich.
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  9. Senik, Claudia, 2007. "Direct Evidence on Income Comparisons and their Welfare Effects," IZA Discussion Papers 3195, Institute for the Study of Labor (IZA).
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  12. Hildebrand, Vincent & Van Kerm, Philippe, 2005. "Income inequality and self-rated health status: Evidence from the European Community Household Panel," IRISS Working Paper Series, IRISS at CEPS/INSTEAD 2005-01, IRISS at CEPS/INSTEAD.
  13. Jones, Andrew M. & Wildman, John, 2008. "Health, income and relative deprivation: Evidence from the BHPS," Journal of Health Economics, Elsevier, Elsevier, vol. 27(2), pages 308-324, March.
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  15. Origo, Federica & Pagani, Laura, 2009. "Flexicurity and job satisfaction in Europe: The importance of perceived and actual job stability for well-being at work," Labour Economics, Elsevier, Elsevier, vol. 16(5), pages 547-555, October.
  16. Miller, Douglas L. & Paxson, Christina, 2006. "Relative income, race, and mortality," Journal of Health Economics, Elsevier, Elsevier, vol. 25(5), pages 979-1003, September.
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