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Inequality and happiness: When perceived social mobility and economic reality do not match

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  • Bjornskov, Christian
  • Dreher, Axel
  • Fischer, Justina AV
  • Schnellenbach, Jan

Abstract

In this paper, we revisit the association between happiness and inequality. We argue that the interaction between the perceived and the actual fairness of the income generation process affects this association. Building on a simple model of individual labor-market participation under uncertainty, we predict that higher levels of perceived fairness cause higher levels of utility, and lower preferred levels of income redistribution. In societies with a low level of actual social mobility, income inequality is perceived more negatively with increased perceived fairness, due to the need for unexpected policy changes as a response to many unsuccessful investments of overly optimistic individuals. This effect becomes smaller as actual social mobility increases. Using data on happiness and a broad set of fairness measures from the World Values Survey, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the disappointment effect in countries with low social mobility. Consistent with our theoretical model, the results for high-mobility countries turn out to be ambiguous.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25826.

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Date of creation: 12 Oct 2010
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Handle: RePEc:pra:mprapa:25826

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Keywords: Happiness; life satisfaction; subjective well-being; inequality; income distribution; redistribution; political ideology; justice; fairness; World Values Survey;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Inequality and happiness: When perceived social mobility and economic reality do not match
    by maximorossi in NEP-LTV blog on 2010-12-21 13:54:59
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Cited by:
  1. Bjornskov, 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," MPRA Paper 44827, University Library of Munich, Germany.
  2. Carina Engelhardt & Andreas Wagener, 2014. "Biased Perceptions of Income Inequality and Redistribution," CESifo Working Paper Series 4838, CESifo Group Munich.
  3. Feld, Lars P. & Schnellenbach, Jan, 2013. "Political institutions and income (re-)distribution: Evidence from developed economies," Freiburg Discussion Papers on Constitutional Economics 13/6, Walter Eucken Institut e.V..
  4. Justina A V Fischer & Benno Torgler, 2011. "Do Positional Concerns Destroy Social Capital: Evidence from 26 Countries," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 265, School of Economics and Finance, Queensland University of Technology.
  5. Gehring, Kai, 2013. "Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being," World Development, Elsevier, vol. 50(C), pages 74-90.
  6. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute for the Study of Labor (IZA).
  7. Eiji Yamamura, 2014. "Comparing the influence of conflict on the perceptions of rich and poor: testing the hypothesis of Acemoglu and Robinson," ISER Discussion Paper 0911, Institute of Social and Economic Research, Osaka University.
  8. Christoph Schinke, 2014. "Government Ideology, Globalization, and Top Income Shares in OECD Countries," Ifo Working Paper Series Ifo Working Paper No. 181, Ifo Institute for Economic Research at the University of Munich.
  9. Jesper Rözer & Gerbert Kraaykamp, 2013. "Income Inequality and Subjective Well-being: A Cross-National Study on the Conditional Effects of Individual and National Characteristics," Social Indicators Research, Springer, vol. 113(3), pages 1009-1023, September.
  10. Schnellenbach, Jan & Schubert, Christian, 2014. "Behavioral public choice: A survey," Freiburg Discussion Papers on Constitutional Economics 14/03, Walter Eucken Institut e.V..

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