Rethinking the Relative Income Hypothesis
AbstractIncome 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 InfoPaper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 501.
Length: 49 p.
Date of creation: 2012
Date of revision:
Relative deprivation; relative satisfaction; health;
Find related papers by JEL classification:
- I12 - Health, Education, and Welfare - - Health - - - Health Production
- I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
- I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-06 (All new papers)
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