Inequality and well-being in transition economies: A non-experimental test of inequality aversion
AbstractThis paper examines the link between inequality and individual well-being using household survey data from 27 Transition Economies, where income inequality increased considerably since 1989. A test of inequality aversion in individual preferences that draws on the Fehr and Schmidt (QJE, 1999) specification of inequality aversion is proposed, and the difficulties of implementing it in a non-experimental setting are discussed. Estimates based on this model confirm aversion to inequality both in the overall sample and in the regional sub-samples. The Gini index, on the other hand, is unable to capture this negative effect of inequality on well-being. Notably, inequality aversion is not intrinsic. Rather, it appears to be tied to a concern with the fairness of the institutions underlying the distribution of fortunes in society. The evidence is suggestive of inequality of opportunity driving attitudes toward overall inequality. Perceiving inequality to be unfair is also associated with calls for strong government involvement in redistributive policies.
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Bibliographic InfoPaper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 238.
Length: 40 pages
Date of creation: 2011
Date of revision:
inequality aversion; relative deprivation; subjective well-being; transition economies.;
Find related papers by JEL classification:
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-CWA-2011-12-13 (Central & Western Asia)
- NEP-HAP-2011-12-13 (Economics of Happiness)
- NEP-LTV-2011-12-13 (Unemployment, Inequality & Poverty)
- NEP-TRA-2011-12-13 (Transition Economics)
- NEP-UPT-2011-12-13 (Utility Models & Prospect Theory)
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