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Income Distribution and Subjective Happiness: A Survey

Listed author(s):
  • Claudia Senik

    (Paris School of Economics)

This survey summarises the insights that the new literature based on subjective data has shed on the issue of income inequality and income comparisons. It reviews the various channels that relate income distribution and subjective well-being. It considers the welfare effect of income gaps in general, both in terms of the difference between individual income and the income of some relevant other, and with regard to generic income distribution. Concerning income comparisons, the general lesson is that it is useful to distinguish status effects from signal effects: income comparisons hurt, but they may also increase life satisfaction when they mean good news; this is all the more likely as the reference group is made of people who most likely share a common destiny. Concerning income distribution in general, the relationship with subjective well-being is generally found to be negative, with higher societal inequality being associated with lower subjective well-being. There are many possible pathways which may lie behind such an empirical finding. The first type of aversion to income inequality derives from self-centred motives, such as risk-aversion and prospects for upward mobility (POUM). Both stem from a perception of the income distribution as a ladder that one risks falling from or has a chance to climb. Attitudes to inequality are also sometimes found to be based on other-regarding preferences such as fairness and reciprocity, which are generally independent of the income position of the individual himself. An important point is that subjective attitudes are the joint output of preferences and beliefs concerning income distribution in society. The demand for redistribution is higher whenever people have strong preferences for equal outcomes or opportunities but believe that in the society in which they live, outcomes or opportunities are actually not equal. As illustrated by several studies, preferences and beliefs concerning income distribution are context dependent and are thus heterogeneous across countries and groups of the population. Cet article présente une revue de la littérature consacrée au lien entre inégalités de revenu et bien-être subjectif. Elle résume les apports des études empiriques fondées sur l’exploitation des données subjectives disponibles dans les grandes enquêtes auprès de la population. Elle considère l’effet des écarts de revenu au sens étroit – comparaisons avec le revenu d’un groupe de référence – et au sens large – effet des inégalités de revenu en général. Les études relatives aux comparaisons de revenu mettent en lumière deux phénomènes différents : les effets de statut (envie), dont l’impact sur le bien-être subjectif est négatif, et les effets de signal, dont l’impact est positif. L’effet de signal est lié au contenu informationnel du revenu d’autrui ; il est d’autant plus important que les membres du groupe de référence partagent un grand nombre de caractéristiques productives, donc des perspectives professionnelles communes. Concernant la répartition générale des revenus dans la société, les travaux empiriques conduisent généralement à l’établissement d’une relation négative entre inégalité des revenus et bien-être subjectif. Les phénomènes en jeu sont multiples. Un premier type d’attitude vis-à-vis des inégalités de revenus relève de l’aversion au risque ou des perspectives de mobilité ascendante. Dans les deux cas, l’échelle des revenus est perçue par les individus d’un point de vue autocentré, en tant que chance d’ascension ou risque de chute. Cependant, un grand nombre de travaux empiriques suggère également l’existence de préférences concernant le revenu d’autrui. Plus précisément, l’attitude vis-à-vis des inégalités dépend de la conjonction entre les croyances et les préférences des agents concernant la formation des inégalités. La demande de redistribution est ainsi plus forte lorsque les agents expriment une préférence pour l’égalité des revenus ou des opportunités, mais estiment que cette égalité n’est pas réalisée dans les faits. Certaines études illustrent alors l’hétérogénéité des préférences et des croyances selon les pays et les groupes sociaux.

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Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 96.

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Date of creation: 02 Dec 2009
Handle: RePEc:oec:elsaab:96-en
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