IDEAS home Printed from https://ideas.repec.org/a/bla/revinw/v69y2023i4p1114-1135.html
   My bibliography  Save this article

When income differences hurt or excite: The nonlinear effect of regional inequality on subjective wellbeing

Author

Listed:
  • Leonardo Becchetti
  • Francesco Colcerasa
  • Fabio Pisani

Abstract

Combining information from the European Union Statistics on Income and Living Conditions and the European Social Survey, we investigate the relationship between subjective well‐being and income inequality using regional inequality indicators and individual data. We assume that inequality aversion and perception of social mobility affect the impact of regional inequality on subjective well‐being in opposite directions. We find evidence of an inverse U‐shaped effect of inequality, where inequality starts to have a positive effect on subjective well‐being that becomes negative with a switch point before the average of the Gini index for the entire sample. The rationale for our nonlinear finding is that Hirschman's tunnel effect (and the positive effect of perceived social mobility) prevails for low levels of inequality, while inequality aversion and negative relative income effects are relatively stronger when inequality is higher. Robustness checks on different sample splits are consistent with the hypothesis of the two drivers.

Suggested Citation

  • Leonardo Becchetti & Francesco Colcerasa & Fabio Pisani, 2023. "When income differences hurt or excite: The nonlinear effect of regional inequality on subjective wellbeing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(4), pages 1114-1135, December.
    • Handle: RePEc:bla:revinw:v:69:y:2023:i:4:p:1114-1135
    DOI: 10.1111/roiw.12608
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/roiw.12608
    Download Restriction: no
    File URL: https://libkey.io/10.1111/roiw.12608?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Conchita D’Ambrosio & Joachim Frick, 2007. "Income Satisfaction and Relative Deprivation: An Empirical Link," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 81(3), pages 497-519, May.
    2. Paolo Verme, 2011. "Life Satisfaction And Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 111-127, March.
    3. Simone Schneider, 2012. "Income Inequality and its Consequences for Life Satisfaction: What Role do Social Cognitions Play?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 106(3), pages 419-438, May.
    4. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-1136, December.
    5. Haskel, Jonathan & Slaughter, Matthew J, 2001. "Trade, Technology and U.K. Wage Inequality," Economic Journal, Royal Economic Society, vol. 111(468), pages 163-187, January.
    6. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    7. Brockett, Charles D., 1992. "Measuring Political Violence and Land Inequality in Central America," American Political Science Review, Cambridge University Press, vol. 86(1), pages 169-176, March.
    8. Heinz Welsch, 2007. "Macroeconomics and life satisfaction: Revisiting the "misery index"," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 237-251, November.
    9. Martin Ravallion, 2018. "Inequality and Globalization: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 620-642, June.
    10. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    11. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
    12. Paola Giuliano & Antonio Spilimbergo, 2014. "Growing up in a Recession," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 787-817.
    13. Ada Ferrer-i-Carbonell & Xavier Ramos, 2014. "Inequality And Happiness," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 1016-1027, December.
    14. Brown, Sarah & Gray, Daniel & Roberts, Jennifer, 2015. "The relative income hypothesis: A comparison of methods," Economics Letters, Elsevier, vol. 130(C), pages 47-50.
    15. Carol Graham & Andrew Felton, 2006. "Inequality and happiness: Insights from Latin America," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 107-122, April.
    16. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well‐Being," International Finance, Wiley Blackwell, vol. 6(1), pages 1-26, March.
    17. Hans P. Binswanger & Klaus Deininger & Gershon Feder, 1993. "Agricultural Land Relations in the Developing World," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(5), pages 1242-1248.
    18. David Dorn & Justina Fischer & Gebhard Kirchgässner & Alfonso Sousa-Poza, 2008. "Direct democracy and life satisfaction revisited: new evidence for Switzerland," Journal of Happiness Studies, Springer, vol. 9(2), pages 227-255, June.
    19. Midlarsky, Manus I., 1988. "Rulers and the Ruled: Patterned Inequality and the Onset of Mass Political Violence," American Political Science Review, Cambridge University Press, vol. 82(2), pages 491-509, June.
    20. Schwarze, Johannes & Harpfer, Marco, 2007. "Are people inequality averse, and do they prefer redistribution by the state?: Evidence from German longitudinal data on life satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 233-249, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute of Labor Economics (IZA).
    2. Martin Schröder, 2018. "Income Inequality and Life Satisfaction: Unrelated Between Countries, Associated Within Countries Over Time," Journal of Happiness Studies, Springer, vol. 19(4), pages 1021-1043, April.
    3. Kuhn, Andreas, 2015. "The Subversive Nature of Inequality: Subjective Inequality Perceptions and Attitudes to Social Inequality," IZA Discussion Papers 9406, Institute of Labor Economics (IZA).
    4. Peng Wang & Jay Pan & Zhehui Luo, 2015. "The Impact of Income Inequality on Individual Happiness: Evidence from China," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 121(2), pages 413-435, April.
    5. Andreas Kuhn, 2016. "The Subversive Nature of Inequality: Subjective Inequality Perceptions and Attitudes to Social Inequality," CESifo Working Paper Series 6023, CESifo.
    6. Burkhauser, Richard V. & De Neve, Jan-Emmanuel & Powdthavee, Nattavudh, 2016. "Top Incomes and Human Well-being Around the World," IZA Discussion Papers 9677, Institute of Labor Economics (IZA).
    7. Teresa María García Muñoz & Juliette Milgram Baleix & Omar Odeh Odeh, 2022. "System Justification Beliefs and Life Satisfaction. The role of inequality aversion and support for redistribution," ThE Papers 22/15, Department of Economic Theory and Economic History of the University of Granada..
    8. Tuyen Quang Tran & Cuong Viet Nguyen & Huong Vu, 2018. "Does Economic Inequality Affect the Quality of Life of Older People in Rural Vietnam?," Journal of Happiness Studies, Springer, vol. 19(3), pages 781-799, March.
    9. T. Tavor & L. D. Gonen & M. Weber & U. Spiegel, 2018. "The Effects of Income Levels and Income Inequalities on Happiness," Journal of Happiness Studies, Springer, vol. 19(7), pages 2115-2137, October.
    10. Powdthavee, Nattavudh & Burkhauser, Richard V. & De Neve, Jan-Emmanuel, 2017. "Top incomes and human well-being: Evidence from the Gallup World Poll," Journal of Economic Psychology, Elsevier, vol. 62(C), pages 246-257.
    11. Woo Chang Kang & Jae Seung Lee & BK Song, 2020. "Envy and Pride: How Economic Inequality Deepens Happiness Inequality in South Korea," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 150(2), pages 617-637, July.
    12. Quang Tran, Tuyen & Viet Nguyen, Cuong & Van Vu, Huong, 2015. "Economic Inequality and Happiness: A quantitative study among the elderly in Rural Vietnam," MPRA Paper 81235, University Library of Munich, Germany, revised 14 Oct 2016.
    13. Angeles Sánchez & María J. Ruiz-Martos, 2018. "Europe 2020 Strategy and Citizens’ Life Satisfaction," Journal of Happiness Studies, Springer, vol. 19(8), pages 2315-2338, December.
    14. Adalgiso Amendola & Roberto Dell’Anno & Lavinia Parisi, 2019. "Happiness and inequality in European countries: is it a matter of peer group comparisons?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(2), pages 473-508, July.
    15. Thanos Fragkandreas, 2022. "Three Decades of Research on Innovation and Inequality: Causal Scenarios, Explanatory Factors, and Suggestions," Working Papers 60, Birkbeck Centre for Innovation Management Research, revised Feb 2022.
    16. Sałach-Dróżdż Katarzyna, 2024. "Wealth inequality, income inequality, and subjective well-being: A cross-country study," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 60(3), pages 227-242.
    17. Gregor Gonza & Anže Burger, 2017. "Subjective Well-Being During the 2008 Economic Crisis: Identification of Mediating and Moderating Factors," Journal of Happiness Studies, Springer, vol. 18(6), pages 1763-1797, December.
    18. Ana I. Moro Egido & Maria Navarro & Ángeles Sánchez-Domínguez, 2017. "Changes in Subjective Well-Being Over Time in Germnay," ThE Papers 17/05, Department of Economic Theory and Economic History of the University of Granada..
    19. Ana I. Moro Egido, 2021. "Social Comparisons; the behavioural component," ThE Papers 21/04, Department of Economic Theory and Economic History of the University of Granada..
    20. Elena Bárcena-Martín & Alexandra Cortés-Aguilar & Ana I. Moro-Egido, 2017. "Social Comparisons on Subjective Well-Being: The Role of Social and Cultural Capital," Journal of Happiness Studies, Springer, vol. 18(4), pages 1121-1145, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:revinw:v:69:y:2023:i:4:p:1114-1135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iariwea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.