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On the relation between income inequality and happiness: Do fairness perceptions matter?

  • Bjornskov, Christian
  • Dreher, Axel
  • Fischer, Justina AV
  • Schnellenbach, Jan

In this paper, we revisit the association between happiness and inequality. We argue that the perceived fairness of the income generation process affects this association. Building on a two-period model of individual life-time utility maximization, we predict that persons with higher perceived fairness will experience higher levels of life-time utility and are less in favor of income redistribution. In societies with a high level of actual social mobility, income inequality is perceived more positively with increased expected fairness. The opposite is expected for countries with low actual social mobility, due to an increasing relevance of a disappointment effect resulting from unsuccessful individual investments. Using the World Values Survey data and a broad set of fairness measures, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the disappointment effect in low social mobility countries. In contrast, the results for high-mobility countries turn out to be ambiguous.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19494.

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Date of creation: 21 Dec 2009
Date of revision:
Handle: RePEc:pra:mprapa:19494
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  1. Andrew E. Clark & Emanuela D'Angelo, 2013. "Upward Social Mobility, Well-being and Political Preferences: Evidence from the BHPS," CEP Discussion Papers dp1252, Centre for Economic Performance, LSE.
  2. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  3. Frey, Bruno S. & Stutzer, Alois, 2002. "Beyond Outcomes: Measuring Procedural Utility," Berkeley Olin Program in Law & Economics, Working Paper Series qt7qp9q1js, Berkeley Olin Program in Law & Economics.
  4. Fischer, Justina AV, 2009. "Happiness and age cycles – return to start…," MPRA Paper 15249, University Library of Munich, Germany.
  5. Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does Relative Income Matter?: Are the Critics Right?," SOEPpapers on Multidisciplinary Panel Data Research 210, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
  7. Christian Bjørnskov & Axel Dreher & Justina A.V. Fischer, 2006. "Cross-Country Determinants of Life Satisfaction: Exploring Different Determinants across Groups in Society," KOF Working papers 06-145, KOF Swiss Economic Institute, ETH Zurich.
  8. Alberto Alesina & Eliana La Ferrara, . "Preferences for Redistribution in the Land of Opportunities," Working Papers 178, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  10. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, vol. 76(1), pages 87-104, April.
  11. Kohei Kawamura, 2008. "Communication for Public Goods," ESE Discussion Papers 182, Edinburgh School of Economics, University of Edinburgh.
  12. Justina A.V. Fischer, 2009. "Happiness and Age Cycles - Return to Start...?: On the Functional Relationship between Subjective Well-Being and Age," OECD Social, Employment and Migration Working Papers 99, OECD Publishing.
  13. Corneo, Giacomo & Grüner, Hans Peter, 2001. "Individual Preferences for Political Redistribution," CEPR Discussion Papers 2694, C.E.P.R. Discussion Papers.
  14. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  15. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Marklein, Felix & Sunde, Uwe, 2009. "Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample," Munich Reprints in Economics 20042, University of Munich, Department of Economics.
  16. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  17. Justina A.V. Fischer, 2009. "The Welfare Effects of Social Mobility," OECD Social, Employment and Migration Working Papers 93, OECD Publishing.
  18. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  19. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  20. Ed Hopkins, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," Levine's Bibliography 122247000000001896, UCLA Department of Economics.
  21. Fischer, Justina AV, 2009. "Subjective Well-Being as Welfare Measure: Concepts and Methodology," MPRA Paper 16619, University Library of Munich, Germany.
  22. Ruut Veenhoven, 2000. "The Four Qualities of Life," Journal of Happiness Studies, Springer, vol. 1(1), pages 1-39, March.
  23. Irena Grosfeld & Claudia Senik, 2009. "The emerging aversion to inequality - Evidence from long subjective data," PSE Working Papers halshs-00586788, HAL.
  24. repec:oup:qjecon:v:114:y:1999:i:3:p:817-868 is not listed on IDEAS
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