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Relative Income and Subjective Wellbeing: Intra-national and Inter-national Comparisons by Settlement and Country Type

Author

Listed:
  • Arthur Grimes

    () (Motu Economic and Public Policy Research)

  • Marc Reinhardt

    () (University of Auckland)

Abstract

We extend the Easterlin Paradox (EP) literature in two key respects, testing whether inter-national as well as intra-national income comparisons matter for subjective wellbeing, and testing whether these effects differ by settlement-type as well as by country-type. We confirm the intra-national EP predictions (that subjective wellbeing is left unchanged by an equi-proportionate rise in all intra-country incomes) across four developed country settlement types ranging from rural areas to large cities. The EP result also holds for rural areas in transitional countries but not for larger settlement sizes in those countries. For all country-settlement types, we confirm the importance also of inter-national income comparisons in determining people’s subjective wellbeing. Again, however, the effect is less prominent in larger transitional country cities. We also show that once we control for personal characteristics and income-related factors, we cannot reject the presence of a spatial equilibrium in life satisfaction. Our results indicate that each individual government that wishes to raise the life satisfaction of its residents still needs to boost those residents’ incomes in order to raise their subjective wellbeing. However, at least amongst developed countries, this practice results in an international Prisoners Dilemma in which mean life satisfaction stays stable despite rising global incomes.

Suggested Citation

  • Arthur Grimes & Marc Reinhardt, 2015. "Relative Income and Subjective Wellbeing: Intra-national and Inter-national Comparisons by Settlement and Country Type," Working Papers 15_10, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:15_10
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    File URL: http://motu-www.motu.org.nz/wpapers/15_10.pdf
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    References listed on IDEAS

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    1. Do major cities create unhappy Australians?
      by Winton Bates in Freedom and Flourishing on 2015-09-20 02:30:00

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    Cited by:

    1. Yeniaras, Volkan & Akkemik, K. Ali & Yucel, Eray, 2016. "Re-considering the linkage between the antecedents and consequences of happiness," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 176-191.

    More about this item

    Keywords

    Income comparison; wellbeing; Easterlin Paradox; spatial equilibrium;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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