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 evide...
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| 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 |
| Summary: | 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. |
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