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Rethinking the Relative Income Hypothesis

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  • Cristina Blanco-Perez

Abstract

Income comparisons have been found to be important for individual health. However, the literature has so far looked solely at upward comparisons, disregarding the effects of comparisons with worse-off individuals. In this paper, I use a broad definition of relative income to test simultaneously for the effect of "upward" and "downward" income comparisons on health. Relative deprivation and relative satisfaction indexes are used to summarise upward and downward comparisons. Panel data models are used to correct for income endogeneity bias due to omitted variables. Using German Socio-Economic Panel data (SOEP), results show that relative deprivation has a positive effect, while relative satisfaction has a deleterious impact on health. These findings hold after correcting for unobserved heterogeneity and are robust to using quasi-objective health measures (but mental health) and to different reference groups.

Suggested Citation

  • Cristina Blanco-Perez, 2012. "Rethinking the Relative Income Hypothesis," SOEPpapers on Multidisciplinary Panel Data Research 501, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp501
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    References listed on IDEAS

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    Cited by:

    1. Kronenberg, C. & Jacobs, R. & Zucchelli, E., 2015. "The impact of a wage increase on mental health: Evidence from the UK minimum wage," Health, Econometrics and Data Group (HEDG) Working Papers 15/08, HEDG, c/o Department of Economics, University of York.
    2. Ifcher, John & Zarghamee, Homa & Graham, Carol Lee, 2016. "Local Neighbors as Positives, Regional Neighbors as Negatives: Competing Channels in the Relationship between Others' Income, Health, and Happiness," IZA Discussion Papers 9934, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Relative deprivation; relative satisfaction; health;

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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