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Does income deprivation affect people’s mental well-being?

Author

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  • Maite Blázquez Cuesta

    (Universidad Autónoma de Madrid)

  • Santiago Budría

    (CEEAPLA, IZA and Banco de ESpaña)

Abstract

This paper uses panel data from the 2002-2010 waves of the German Socio-Economic Panel dataset (SOEP) to assess the impact of income deprivation upon individual mental well-being. Unobserved heterogeneity is controlled for by means of a random effects model extended to include a Mundlak term and explicit controls for the respondents’ personality traits. The paper shows that, for a given household income, a less favourable relative position in the income distribution is associated with lower mental well-being. This effect is not statistically significant among women, though. Among men, a one standard deviation increase in income deprivation is found to be as harmful as a reduction in permanent household income of almost 30%. Interestingly, this impact is found to differ among individuals endowed with different sets of non-cognitive skills. We suggest that policies, practices and initiatives aimed at improving well-being among European citizens require a better understanding of individuals’ sensitiveness to others’ income.

Suggested Citation

  • Maite Blázquez Cuesta & Santiago Budría, 2013. "Does income deprivation affect people’s mental well-being?," Working Papers 1312, Banco de España.
    • Handle: RePEc:bde:wpaper:1312
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    More about this item

    Keywords

    mental health; random effects model; deprivation; personality traits;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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