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Inequality and happiness: the role of income versus wealth inequality

Author

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  • Katarzyna Sałach-Dróżdż

    (University of Warsaw, Faculty of Economic Science)

Abstract

There are conflicting theories about whether individuals like or dislike inequality, or in other words, whether living in an unequal country increases or decreases their subjective well-being. The empirical literature has also not yet reached a consensus. In this paper, we add a new perspective to the inequality-happiness puzzle. First, we study not only income inequality, but also wealth inequality, which has so far been overlooked in the happiness literature. Second, we reach beyond the usually studied Gini coefficient and top income shares, looking also at the other parts of income or wealth distribution. Using data from the integrated World Values Surveys and European Values Surveys for over 50 countries, matched with World Inequality Database data over the years 1981-2020, we find that individuals are happier with increases in the top 10% and top 1% shares of wealth and less happy with increases in the middle 40% share of either wealth or pre-tax income. Increasing the bottom 50% share of after-tax income also makes individuals happier, suggesting that they favor income redistribution. We offer possible explanations for these findings.

Suggested Citation

  • Katarzyna Sałach-Dróżdż, 2023. "Inequality and happiness: the role of income versus wealth inequality," Working Papers 2023-04, Faculty of Economic Sciences, University of Warsaw.
  • Handle: RePEc:war:wpaper:2023-04
    as

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    File URL: https://www.wne.uw.edu.pl/download_file/2553/0
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    References listed on IDEAS

    as
    1. Paolo Verme, 2011. "Life Satisfaction And Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 111-127, March.
    2. Bruce Headey & Mark Wooden, 2004. "The Effects of Wealth and Income on Subjective Well‐Being and Ill‐Being," The Economic Record, The Economic Society of Australia, vol. 80(s1), pages 24-33, September.
    3. Bjørnskov, Christian & Dreher, Axel & Fischer, Justina A.V. & Schnellenbach, Jan & Gehring, Kai, 2013. "Inequality and happiness: When perceived social mobility and economic reality do not match," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 75-92.
    4. Monica Guillen-Royo & Jackeline Velazco & Laura Camfield, 2013. "Basic Needs and Wealth as Independent Determinants of Happiness: An Illustration from Thailand," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 110(2), pages 517-536, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    income inequality; wealth inequality; happiness; subjective well-being; life satisfaction;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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