Note: The author is very grateful to two anonymous referees who provided very useful comments. A special thank to the first referee who took the time to read the paper several times and provided extremely detailed and constructive comments.
LIFE SATISFACTION AND INCOME INEQUALITY
Article first published online: 11 NOV 2010
© 2010 The Author. Review of Income and Wealth © 2010 International Association for Research in Income and Wealth
Review of Income and Wealth
Volume 57, Issue 1, pages 111–127, March 2011
How to Cite
Verme, P. (2011), LIFE SATISFACTION AND INCOME INEQUALITY. Review of Income and Wealth, 57: 111–127. doi: 10.1111/j.1475-4991.2010.00420.x
- Issue published online: 22 FEB 2011
- Article first published online: 11 NOV 2010
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 of 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 we test the consistency of the effect of income inequality in predicting life satisfaction. We find that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes of 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.