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Income Comparisons among Neighbours and Life Satisfaction in East and West Germany

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  • Gundi Knies

Abstract

A series of studies have suggested that changes in others' income may be perceived differently in post-transition and capitalist societies. This paper draws on the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics in very tightly drawn neighbourhoods to investigate whether reactions to changes in their neighbours' income divide the German nation. We find that the neighbourhood income effect for West Germany is negative (which is in line with the "relative income" hypothesis) and slightly more marked in neighbourhoods that may be assumed to be places where social interactions between neighbours take place. In contrast, the coefficients on neighbourhood income in East Germany are positive (which is consistent with the 'signalling' hypothesis), but statistically not significant. This suggests not only that there is a divide between East and West Germany, but also that neighbours may not be a relevant comparison group in societies that have comparatively low levels of neighbouring.

Suggested Citation

  • Gundi Knies, 2010. "Income Comparisons among Neighbours and Life Satisfaction in East and West Germany," SOEPpapers on Multidisciplinary Panel Data Research 298, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp298
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    References listed on IDEAS

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    1. Gundi Knies & Simon Burgess & Carol Propper, 2008. "Keeping up with the Schmidt`s – An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(1), pages 75-108.
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    Cited by:

    1. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.
    2. Runli Xie, 2010. "Consumption Growth and Volatility with Consumption Externalities," SFB 649 Discussion Papers SFB649DP2010-057, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Keywords

    Comparison income; Reference group; Life Satisfaction; Neighbourhood effects;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Z1 - Other Special Topics - - Cultural Economics

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