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Income Comparisons. Which Income Gaps Matter Most to People?

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Claudia Senik

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Abstract

This paper provides unheard direct evidence that comparisons are relevant and exert a significant effect on subjective well-being. It also evaluates the relative importance of different types of benchmarks. It hinges on the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. It suggests that dynamic comparisons outweigh static ones. Internal benchmarks are more important than external reference groups. However, local comparisons (to parents, former colleagues or school classmates) do exert an effect on life satisfaction: they are more powerful than general comparisons such as my rank in the social ladder and its evolution. The most important impact comes from the deterioration of my living standard and from under-performing my former schoolmates or colleagues. A possible interpretation is that comparisons benchmarks are all the more powerful as they are interpreted by people in terms of seized or lost opportunities.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2007-19.

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Date of creation: 2007
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Handle: RePEc:pse:psecon:2007-19

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