The Relative Income and Relative Deprivation Hypotheses : A Review of the Empirical Literature

The paper provides a review of the empirical literature in economics that has attempted to test the relative income hypothesis as put forward by Duesemberry (1949) and the relative deprivation hypothesis as formalized by Runciman (1966). It is argued that these two hypotheses and the empirical models used to test them are essentially similar and make use of the same relative income concept. The review covers the main intellectual contributions that led to the formulation and tests of these hypotheses, the main formulations of the utility and econometric equations used in empirical studies, the main econometric issues that complicate tests of the hypotheses, and the empirical results found in the literature. The majority of studies uses absolute and relative income together as explanatory factors in utility models and finds absolute income to have a positive and significant effect on utility (happiness). The majority of studies also finds relative income to be a significant factor in explaining utility but the sign of this relation varies across studies. The source of this variation is complex to detect given that few results are directly comparable across studies because of differences in model specifications.

Bibliographic Details

Main Author:	Verme, Paolo
Language:	English en_US
Published:	World Bank, Washington, DC 2013-09
Subjects:	AVERAGE INCOMES, CONSUMERS, CONSUMPTION FUNCTION, CROSS-COUNTRY STUDIES, CROSS-SECTION DATA, DATA SETS, DECISION MAKING, DEPENDENT VARIABLE, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIMINISHING RETURNS, DISTRIBUTIONAL CHANGE, ECONOMETRIC ANALYSIS, ECONOMETRIC ISSUES, ECONOMETRIC MODEL, ECONOMETRIC MODELS, ECONOMETRIC PROBLEMS, ECONOMETRICS, ECONOMIC GROWTH, ECONOMIC INEQUALITY, ECONOMIC RESEARCH, ECONOMIC REVIEW, ECONOMIC SYSTEMS, ECONOMIC THEORY, ELASTICITY, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EMPIRICAL LITERATURE, EMPIRICAL MODEL, EMPIRICAL MODELS, EMPIRICAL RESEARCH, EMPIRICAL RESULTS, EMPIRICAL STUDIES, EMPIRICAL WORKS, EMPLOYMENT STATUS, EQUATIONS, EXOGENOUS SHOCKS, EXPLANATORY FACTORS, EXPLANATORY POWER, EXPLANATORY VARIABLE, EXPLANATORY VARIABLES, GDP, GDP PER CAPITA, GINI COEFFICIENT, GINI INDEX, GROUP INEQUALITIES, HOUSEHOLD INCOME, INCOME DISTRIBUTION, INCOME EFFECT, INCOME EQUATION, INCOME INEQUALITY, INCOME LEVELS, INCOME SCALE, INCOME SOURCE, INCOME VARIABLES, INCOMES, INCREASING FUNCTION, INDIVIDUAL INCOMES, INEQUALITY, KEYNESIAN ECONOMICS, LABOR MARKET, LABOR SUPPLY, LABOUR, LIFE EXPECTANCY, LONGITUDINAL DATA, LOTTERY, LOW INCOME, MACROECONOMICS, MARGINAL UTILITY, MARKET ECONOMIES, MEAN INCOME, MEAN INCOMES, NATIONAL INCOME, NEGATIVE SIGN, PERMANENT INCOME, PERMANENT INCOME HYPOTHESIS, POLICY DISCUSSIONS, POLICY RESEARCH, POLITICAL ECONOMY, POLITICAL SCIENCE, POOR, POSITIVE COEFFICIENT, POVERTY REDUCTION, PUBLIC ECONOMICS, PUBLIC GOODS, PUBLIC POLICY, RELATIVE EARNINGS, RELATIVE INCOME, RELATIVE INCOME DISTRIBUTION, RELATIVE INCOMES, RURAL, RURAL AREAS, SAVINGS, SIGNIFICANT DIFFERENCES, SIGNIFICANT EFFECT, SOCIAL CAPITAL, TAXATION, TRANSITION ECONOMIES, UNEMPLOYED, UNEMPLOYMENT, UTILITY FUNCTION, UTILITY FUNCTIONS, UTILITY MAXIMIZATION, WAGE INCREASES, WAGES, WAR, WEALTH, WELL-BEING, WELLBEING,
Online Access:	http://documents.worldbank.org/curated/en/2013/09/18263952/relative-income-relative-deprivation-hypotheses-review-empirical-literature https://hdl.handle.net/10986/15825
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