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Inequality and well-being in transition economies: A non-experimental test of inequality aversion

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  • Alexandru Cojocaru

    (University of Maryland)

Abstract

This paper examines the link between inequality and individual well-being using household survey data from 27 Transition Economies, where income inequality increased considerably since 1989. A test of inequality aversion in individual preferences that draws on the Fehr and Schmidt (QJE, 1999) specification of inequality aversion is proposed, and the difficulties of implementing it in a non-experimental setting are discussed. Estimates based on this model confirm aversion to inequality both in the overall sample and in the regional sub-samples. The Gini index, on the other hand, is unable to capture this negative effect of inequality on well-being. Notably, inequality aversion is not intrinsic. Rather, it appears to be tied to a concern with the fairness of the institutions underlying the distribution of fortunes in society. The evidence is suggestive of inequality of opportunity driving attitudes toward overall inequality. Perceiving inequality to be unfair is also associated with calls for strong government involvement in redistributive policies.

Suggested Citation

  • Alexandru Cojocaru, 2011. "Inequality and well-being in transition economies: A non-experimental test of inequality aversion," Working Papers 238, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2011-238
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2011-238.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ayfer Karayel, 2015. "Income Inequality Tolerance and Preferences for Redistribution in Turkey," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 1, September.
    2. Cancho,Cesar A. & Davalos,Maria Eugenia & Sanchez,Carolina, 2015. "Why so gloomy ? perceptions of economic mobility in Europe and Central Asia," Policy Research Working Paper Series 7519, The World Bank.

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    More about this item

    Keywords

    inequality aversion; relative deprivation; subjective well-being; transition economies.;
    All these keywords.

    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
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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