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On the relation between income inequality and happiness: Do fairness perceptions matter?

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  • Bjornskov, Christian
  • Dreher, Axel
  • Fischer, Justina AV
  • Schnellenbach, Jan

Abstract

In this paper, we revisit the association between happiness and inequality. We argue that the perceived fairness of the income generation process affects this association. Building on a two-period model of individual life-time utility maximization, we predict that persons with higher perceived fairness will experience higher levels of life-time utility and are less in favor of income redistribution. In societies with a high level of actual social mobility, income inequality is perceived more positively with increased expected fairness. The opposite is expected for countries with low actual social mobility, due to an increasing relevance of a disappointment effect resulting from unsuccessful individual investments. Using the World Values Survey data and a broad set of fairness measures, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the disappointment effect in low social mobility countries. In contrast, the results for high-mobility countries turn out to be ambiguous.

Suggested Citation

  • Bjornskov, Christian & Dreher, Axel & Fischer, Justina AV & Schnellenbach, Jan, 2009. "On the relation between income inequality and happiness: Do fairness perceptions matter?," MPRA Paper 19494, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:19494
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    1. Is Sweden too boring?
      by Ben Baumberg in inequalities on 2010-11-17 11:00:54

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    More about this item

    Keywords

    Happiness; life satisfaction; subjective well-being; inequality; income distribution; redistribution; political ideology; justice; fairness; World Values Survey;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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