Life Satisfaction and Income Inequality

Do people care about income inequality and does income inequality affect subjective well-being? Welfare theories can predict either a positive or a negative impact of income inequality on subjective well-being and empirical research has found evidence on a positive, negative or non significant relation. This paper attempts to determine some of the possible causes of such empirical heterogeneity. Using a very large sample of world citizens, the author tests the consistency of income inequality in predicting life satisfaction. The analysis finds that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes in regressors and estimation choices and also persists across different income groups and across different types of countries. However, this relation is easily obscured or reversed by multicollinearity generated by the use of country and year fixed effects. This is particularly true if the number of data points for inequality is small, which is a common feature of cross-country or longitudinal studies.

Bibliographic Details

Main Author:	Verme, Paolo
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	2011-02-01
Subjects:	BENCHMARK, CAP, COUNTRY DUMMIES, COUNTRY LEVEL, CROSS-COUNTRY DATA, CROSS-COUNTRY STUDIES, CROSS-COUNTRY STUDY, DATA SET, DATA SETS, DEPENDENT VARIABLE, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISPOSABLE INCOME, DISPOSABLE INCOMES, ECONOMETRIC ANALYSIS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC INEQUALITY, ECONOMIC OUTLOOK, ECONOMIC RESEARCH, ECONOMIC REVIEW, ECONOMICS RESEARCH, EMPIRICAL EVIDENCE, EMPIRICAL FINDINGS, EMPIRICAL LITERATURE, EMPIRICAL MODELS, EMPIRICAL RESEARCH, EMPIRICAL RESULTS, EMPIRICAL STUDIES, EQUATIONS, EXCHANGE RATES, GDP, GDP PER CAPITA, GINI COEFFICIENT, GINI INDEX, GROSS INCOMES, HETEROSKEDASTICITY, HOUSEHOLD INCOME, HOUSEHOLD SURVEYS, IMPACT OF INEQUALITY, INCOME, INCOME DISTRIBUTION, INCOME DISTRIBUTIONS, INCOME EFFECT, INCOME GROUPS, INCOME INEQUALITY, INCOME MEASURES, INCOME SCALE, INCOME TAXES, INCOME VARIABLES, INCOMES, INCREASED INEQUALITY, INCREASING INCOME INEQUALITY, INDIVIDUAL COUNTRIES, INDIVIDUAL INCOMES, INEQUALITY AVERSION, INEQUALITY AVERSION PARAMETER, INEQUALITY DATA, INEQUALITY INDEPENDENT, INEQUALITY MEASURE, INEQUALITY MEASURES, INEQUALITY VARIABLES, LABOUR MARKET, LEARNING, LIFE EXPECTANCY, LONGITUDINAL DATA, MEAN INCOME, MEDIAN INCOME, NATIONAL SURVEYS, NEGATIVE IMPACT, NEGATIVE SIGN, NET EFFECT, PAYROLL TAXES, POLICY DISCUSSIONS, POLICY RESEARCH, POOR, POOR COUNTRIES, POOR PEOPLE, POSITIVE CORRELATION, POSITIVE EFFECT, POVERTY LINE, POVERTY REDUCTION, POWER PARITY, PSU, PUBLIC ECONOMICS, PUBLIC TRANSFERS, PURCHASING POWER, QUESTIONNAIRES, REGIONAL LEVEL, RELATIVE INCOME, RELATIVE POSITION, SAMPLE SIZE, SIGNIFICANCE LEVEL, SIGNIFICANT CORRELATION, SIGNIFICANT EFFECT, SOCIAL CAPITAL, SOCIAL INDICATORS, SOCIAL JUSTICE, SOCIAL MOBILITY, UNEMPLOYMENT, WEALTH, WELL-BEING,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110223133910 http://hdl.handle.net/10986/3341
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