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Income Satisfaction Inequality and Its Causes

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  • Ada Ferrer-i-Carbonell
  • Bernard M. S. van Praag

Abstract

In this paper, the concept of Income Satisfaction Inequality is operationalized on the basis of individual responses to an Income Satisfaction question posed in the German Socio-Economic Panel (GSOEP). Income satisfaction is the subjective analogue of the objective income concept and includes objective income inequality as a special case. The paper introduces a method to decompose Income Satisfaction Inequality according to the contributions from variables such as income, education, and the number of children. Given the panel structure of the data, inequality may be attributed partly to permanent individual circumstances and partly to transitory changes. The paper shows that by far the largest part of the satisfaction inequality has to be ascribed to unobserved heterogeneity. Distinguishing between a structural and an unexplained part of inequality we find that income explains the largest part of structural Income Satisfaction Inequality together with household membership; for non-working individuals, the age distribution is very relevant as well.

Suggested Citation

  • Ada Ferrer-i-Carbonell & Bernard M. S. van Praag, 2003. "Income Satisfaction Inequality and Its Causes," Discussion Papers of DIW Berlin 367, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp367
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    Cited by:

    1. Van Praag, Bernard M.S. & Romanov, Dmitri & Ferrer-i-Carbonell, Ada, 2010. "Happiness and financial satisfaction in Israel: Effects of religiosity, ethnicity, and war," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1008-1020, December.
    2. Mary C. Daly & Daniel J. Wilson, 2006. "Keeping up with the Joneses and staying ahead of the Smiths: evidence from suicide data," Working Paper Series 2006-12, Federal Reserve Bank of San Francisco.
    3. Leonardo Becchetti & Riccardo Massari & Paolo Naticchioni, 2014. "The drivers of happiness inequality: suggestions for promoting social cohesion," Oxford Economic Papers, Oxford University Press, vol. 66(2), pages 419-442.
    4. Andrew E. Clark & Sarah Flèche & Claudia Senik, 2012. "The Great Happiness Moderation," PSE Working Papers halshs-00707290, HAL.
    5. Andrew Jones & Ángel López Nicolás, 2006. "Allowing for heterogeneity in the decomposition of measures of inequality in health," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 347-365.
    6. Demoussis, Michael & Giannakopoulos, Nicholas, 2008. "Analysis of domain satisfactions: Evidence from a panel of Greek women," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(4), pages 1347-1362, August.
    7. Bernard Praag, 2011. "Well-being inequality and reference groups: an agenda for new research," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(1), pages 111-127, March.
    8. Inmaculada García & José Molina & María Navarro, 2007. "How Satisfied are Spouses with their Leisure Time? Evidence from Europe," Journal of Family and Economic Issues, Springer, vol. 28(4), pages 546-565, December.
    9. Rainer Göb & Christopher McCollin & Maria Ramalhoto, 2007. "Ordinal Methodology in the Analysis of Likert Scales," Quality & Quantity: International Journal of Methodology, Springer, vol. 41(5), pages 601-626, October.
    10. Hanna Dudek & Joanna Landmesser, 2012. "Income satisfaction and relative deprivation," Statistics in Transition new series, Główny Urząd Statystyczny (Polska), vol. 13(2), pages 321-334, June.
    11. Alpaslan Akay & Corrado Giulietti & Juan Robalino & Klaus Zimmermann, 2014. "Remittances and well-being among rural-to-urban migrants in China," Review of Economics of the Household, Springer, vol. 12(3), pages 517-546, September.
    12. Miething, Alexander, 2013. "A matter of perception: Exploring the role of income satisfaction in the income–mortality relationship in German survey data 1995–2010," Social Science & Medicine, Elsevier, vol. 99(C), pages 72-79.
    13. Molina, José Alberto & Navarro Paniagua, Maria & Walker, Ian, 2007. "Mums and Their Sons, Dads and Their Daughters: Panel Data Evidence of Interdependent Marginal Utilities across 14 EU Countries," IZA Discussion Papers 2734, Institute for the Study of Labor (IZA).
    14. repec:pri:indrel:dsp01cn69m419r is not listed on IDEAS
    15. Molnár, György & Kapitány, Zsuzsa, 2006. "Mobilitás, bizonytalanság és szubjektív jóllét Magyarországon
      [Mobility, uncertainty and subjective welfare in Hungary]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 845-872.
    16. Jean-Marc Falter, 2006. "Equivalence Scales and Subjective Data in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(II), pages 263-284, June.
    17. Kijazi, Martin Herbert & Kant, Shashi, 2011. "Evaluation of welfare functions of environmental amenities: A case of forest biomass fuels in Mount Kilimanjaro, Tanzania," Ecological Economics, Elsevier, vol. 72(C), pages 129-139.
    18. Monika Sander, 2007. "Return Migration and the "Healthy Immigrant Effect"," SOEPpapers on Multidisciplinary Panel Data Research 60, DIW Berlin, The German Socio-Economic Panel (SOEP).
    19. Labeaga, José M. & Molina, José Alberto & Navarro, María, 2011. "Deprivation using satisfaction measures in Spain: An evaluation of unemployment benefits," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 287-310, March.
    20. Hanna Dudek, 2013. "Subiektywne postrzeganie sytuacji dochodowej - mikroekonometryczna analiza danych panelowych," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 30, pages 219-233.
    21. Simone Schneider, 2010. "The Selection of Pay Referents: Potential Patterns and Impacts on Life Satisfaction," SOEPpapers on Multidisciplinary Panel Data Research 333, DIW Berlin, The German Socio-Economic Panel (SOEP).
    22. Labeaga, José M. & Molina, José Alberto & Navarro Paniagua, Maria, 2007. "Income Satisfaction and Deprivation in Spain," IZA Discussion Papers 2702, Institute for the Study of Labor (IZA).
    23. Zagórski, K. & Piotrowska, K., 2013. "GINI DP 66: Income Inequality in Nations and Sub- national Regions, Happiness and Economic Attitudes," GINI Discussion Papers 66, AIAS, Amsterdam Institute for Advanced Labour Studies.

    More about this item

    Keywords

    Equivalent Income; Financial Satisfaction; Income Satisfaction; Income Inequality; Variance Decomposition.;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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