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Inequality-Aversion and Income Mobility: A Direct Test


  • Andrew Clark


A number of recent papers have found evidence of interdependencies in utility functions, in that, ceteris paribus, individual well-being falls as others' mean income or consumption increases. This paper asks if, in addition, the distribution of income in the reference group matters. I consider full-time employees in eleven waves of British panel data, and take life satisfaction and the GHQ-12 as measures of individual well-being. I find that (i) well-being falls with average reference group income, but (ii) well-being is significantly positively correlated with reference group income inequality. This finding runs counter to the supposed public dislike of inequality. Last, I show that inequality-loving is strongest for those whose own incomes have shown the most variability over the past three years, and those who are on the steepest income path. As such, income inequality seems to include some aspect of opportunity.

Suggested Citation

  • Andrew Clark, 2003. "Inequality-Aversion and Income Mobility: A Direct Test," DELTA Working Papers 2003-11, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2003-11

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    References listed on IDEAS

    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
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    6. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
    7. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
    8. Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
    9. Afanasiev, S.A., 2003. "Pension Reform in Russia: First Year of Implementing," Discussion Paper 146, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    10. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
    11. Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings, stock, and asset markets," Policy Research Working Paper Series 2490, The World Bank.
    12. Impavido, Gregorio & Musalem, Alberto R. & Tressel, Thierry, 2003. "The impact of contractual savings institutions on securities markets," Policy Research Working Paper Series 2948, The World Bank.
    13. Gehrig, Thomas, 1993. " An Information Based Explanation of the Domestic Bias in International Equity Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 97-109.
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    Cited by:

    1. Aboozar Hadavand, 2017. "Misperceptions and mismeasurements: An analysis of subjective economic inequality," Working Papers 449, ECINEQ, Society for the Study of Economic Inequality.
    2. Adam Okulicz-Kozaryn, 2011. "Geography of European Life Satisfaction," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 101(3), pages 435-445, May.
    3. Zhou Xun, 2015. "Preference for Redistribution and Inequality Perception in China: Evidence from the CGSS 2006," AMSE Working Papers 1518, Aix-Marseille School of Economics, Marseille, France.
    4. Adam Okulicz-Kozaryn, 2012. "Income and Well-being Across European Provinces," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 106(2), pages 371-392, April.
    5. repec:aia:ginidp:dp38 is not listed on IDEAS

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