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

  • Gundi Knies

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.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 298.

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Length: 23 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp298
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  1. Clark, Andrew E. & Diener, Ed & Georgellis, Yannis & Lucas, Richard E., 2008. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," CEPREMAP Working Papers (Docweb) 0803, CEPREMAP.
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  3. Knies, Gundi, 2009. "The effects of mobility on neighbourhood social ties," ISER Working Paper Series 2009-15, Institute for Social and Economic Research.
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  8. Michael Shields & Stephen Wheatley Price & Mark Wooden, 2009. "Life satisfaction and the economic and social characteristics of neighbourhoods," Journal of Population Economics, Springer, vol. 22(2), pages 421-443, April.
  9. Knies, Gundi & Burgess, Simon & Propper, Carol, 2007. "Keeping up with the Schmidts: an empirical test of relative deprivation theory in the neighbourhood context," ISER Working Paper Series 2007-19, Institute for Social and Economic Research.
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  15. Caporale, Guglielmo Maria & Georgellis, Yannis & Tsitsianis, Nicholas & Yin, Ya Ping, 2009. "Income and happiness across Europe: Do reference values matter?," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 42-51, February.
  16. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
  17. Stephen Gibbons & Stephen Machin, 2008. "Valuing school quality, better transport, and lower crime: evidence from house prices," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 99-119, spring.
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  19. Jan Goebel & C. Katharina Spieß & Nils R. J. Witte & Susanne Gerstenberg, 2007. "Die Verknüpfung des SOEP mit MICROM-Indikatoren: Der MICROM-SOEP Datensatz," Data Documentation 26, DIW Berlin, German Institute for Economic Research.
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