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The relative income hypothesis: does it exist over time? Evidence from the BHPS

  • Lindley

    (University of Sheffiled)

  • Lorgelly

    (University of East Anglia)

The relative income hypothesis suggests that income inequality has a detrimental affect on people’s health. This previously well accepted relationship has recently come under scrutiny. Some claim it is a statistical artefact, while others argue that aggregate level data are not sophisticated enough to adequately test for its existence. This paper adds to the debate by estimating the relationship between income inequality and health using panel data. A random effects ordered probit is used to estimate the relationship between net household income, regional income inequality and self-reported health, for 3736 individuals over 9 years, while controlling for individual socioeconomic characteristics like gender, social class and age. Significant differences in income inequality across regions and considerable changes in health are found across years, however, the panel data estimating regressions find no significant association between any of the measures of income inequality and self-reported health. Therefore, it would appear that the relative income hypothesis does not exist over time and does not exist within Britain.

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File URL: http://econwpa.repec.org/eps/lab/papers/0510/0510007.pdf
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Paper provided by EconWPA in its series Labor and Demography with number 0510007.

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Date of creation: 07 Oct 2005
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Handle: RePEc:wpa:wuwpla:0510007
Note: Type of Document - pdf
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  1. Dean R. Lillard & Richard V. Burkhauser, 2005. "Income Inequality and Health: A Cross-Country Analysis," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(1), pages 109-118.
  2. Soobader, Mah-Jabeen & LeClere, Felicia B., 1999. "Aggregation and the measurement of income inequality: effects on morbidity," Social Science & Medicine, Elsevier, vol. 48(6), pages 733-744, March.
  3. Laporte, Audrey, 2002. "A note on the use of a single inequality index in testing the effect of income distribution on mortality," Social Science & Medicine, Elsevier, vol. 55(9), pages 1561-1570, November.
  4. Cowell, Frank A & Victoria-Feser, Maria-Pia, 1996. "Robustness Properties of Inequality Measures," Econometrica, Econometric Society, vol. 64(1), pages 77-101, January.
  5. Wildman, John, 2003. "Income related inequalities in mental health in Great Britain: analysing the causes of health inequality over time," Journal of Health Economics, Elsevier, vol. 22(2), pages 295-312, March.
  6. Angus Deaton, 1999. "Inequalities in Income and Inequalities in Health," NBER Working Papers 7141, National Bureau of Economic Research, Inc.
  7. Jennifer M. Mellor & Jeffrey Milyo, 2002. "Income Inequality and Health Status in the United States: Evidence from the Current Population Survey," Journal of Human Resources, University of Wisconsin Press, vol. 37(3), pages 510-539.
  8. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
  9. Hey, John D & Lambert, Peter J, 1980. "Relative Deprivation and the Gini Coefficient: Comment," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 567-73, November.
  10. Stephen P. Jenkins, 1999. "Analysis of income distributions," Stata Technical Bulletin, StataCorp LP, vol. 8(48).
  11. Guillaume R. Frechette, 2001. "Random-effects ordered probit," Stata Technical Bulletin, StataCorp LP, vol. 10(59).
  12. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  13. Jennifer M. Mellor & Jeffrey Milyo, 1999. "Re-Examining the Evidence of an Ecological Association between Income Inequality and Health," Discussion Papers Series, Department of Economics, Tufts University 9922, Department of Economics, Tufts University.
  14. Ellison, George T. H., 2002. "Letting the Gini out of the bottle? Challenges facing the relative income hypothesis," Social Science & Medicine, Elsevier, vol. 54(4), pages 561-576, February.
  15. Jennifer M. Mellor & Jeffrey D. Milyo, 2001. "Income inequality and health," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(1), pages 151-155.
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