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Income inequality and happiness: perceived or actual, widely or narrowly defined, fair or unfair, self- or community-centred inequality?

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  • John Knight
  • Ramani Gunatilaka

Abstract

The effect of inequality on happiness should intrigue social scientists. Of the many dimensions of income inequality, we explore four, analysing a rich data set for China. Does actual or perceived inequality have a greater effect on happiness? We find that perceptions of inequality are the more important. How broad is the reference group with which people compare themselves? They report that it is narrow; and indeed narrowly defined inequality has the greater effect on happiness. Do perceptions of the degree of fairness of inequality matter? The degree of perceived fairness is found to ameliorate the adverse effect of inequality on happiness. Is it self-centred or community-centred inequality which affects happiness? Both measures of inequality have significant effects, but in opposite directions. The research and policy implications are discussed.

Suggested Citation

  • John Knight & Ramani Gunatilaka, 2020. "Income inequality and happiness: perceived or actual, widely or narrowly defined, fair or unfair, self- or community-centred inequality?," Economics Series Working Papers 922, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:922
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    More about this item

    Keywords

    China; Happiness; Inequality; Reference group;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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