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Life satisfaction and income inequality

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  • Verme, Paolo

Abstract

Do people care about income inequality and does income inequality affect subjective well-being? Welfare theories can predict either a positive or a negative impact of income inequality on subjective well-being and empirical research has found evidence on a positive, negative or non significant relation. This paper attempts to determine some of the possible causes of such empirical heterogeneity. Using a very large sample of world citizens, the author tests the consistency of income inequality in predicting life satisfaction. The analysis finds that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes in regressors and estimation choices and also persists across different income groups and across different types of countries. However, this relation is easily obscured or reversed by multicollinearity generated by the use of country and year fixed effects. This is particularly true if the number of data points for inequality is small, which is a common feature of cross-country or longitudinal studies.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5574.

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Date of creation: 01 Feb 2011
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Handle: RePEc:wbk:wbrwps:5574

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Keywords: Inequality; Poverty Impact Evaluation; Economic Theory&Research; Services&Transfers to Poor; Poverty Monitoring&Analysis;

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  1. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 27(1), pages 35-47, June.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How does income inequality affect happiness?
    by Winton Bates in Freedom and Flourishing on 2012-02-09 06:07:00
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Cited by:
  1. 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).
  2. Krzysztof Zagorski & Mariah Evans & Jonathan Kelley & Katarzyna Piotrowska, 2014. "Does National Income Inequality Affect Individuals’ Quality of Life in Europe? Inequality, Happiness, Finances, and Health," Social Indicators Research, Springer, Springer, vol. 117(3), pages 1089-1110, July.
  3. Weinreich, Daniel, 2013. "The perception of distributive fairness and optimal taxation under uncertainty," MPRA Paper 48912, University Library of Munich, Germany.
  4. Luebker, Malte, 2012. "Income Inequality, Redistribution and Poverty: Contrasting rational choice and behavioural perspectives," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Giuseppe Lucio Gaeta, 2012. "In the mood for redistribution. An empirical analysis of individual preferences for redistribution in Italy," Economics Bulletin, AccessEcon, vol. 32(3), pages 2383-2398.
  6. 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, Springer, vol. 113(3), pages 1009-1023, September.
  7. Verme, Paolo, 2013. "The relative income and relative deprivation hypotheses : a review of the empirical literature," Policy Research Working Paper Series 6606, The World Bank.
  8. Luebker, Malte, 2012. "Income inequality, redistribution and poverty contrasting rational choice and behavioural perspectives," ILO Working Papers, International Labour Organization 471001, International Labour Organization.

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