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Income Inequality and Happiness: An Inverted U-Shaped Curve.

ABSTRACT: Numerous studies agree that income inequality, rather than absolute income, is an important predictor of happiness. However, its specific role has been controversial. We argue that income inequality and happiness should exhibit an inverted U-shaped relationship due to the dynamic competing process between two effects: when income inequality is relatively low, the signal effect will be the dominating factor, in which individuals feel happy because they consider income inequality as a signal of social mobility and expect upward mobility; however, if income inequality level increases beyond a critical point, the jealousy effect will become the dominating factor, in which individuals tend to be unhappy because they are disillusioned about the prospect of upward mobility and jealous of their wealthier peers. This hypothesis is tested in a longitudinal dataset on the United States and a cross-national dataset on several European countries. In both datasets, the Gini coefficient (a common index of a society's income inequality) and its quadratic term were significant predictors of personal happiness. Further examinations of the quadratic relationships showed that the signal effect was only presented in the European data, while the jealousy effect was presented in both datasets. These findings shed new light on our understanding of the relationship between income inequality and personal happiness.

SUBMITTER: Yu Z

PROVIDER: S-EPMC5705943 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:The novel coronavirus is part of a series of infectious disease outbreaks that include: Ebola, Avian influenza, Middle East respiratory syndrome coronavirus, and Influenza A. This paper addresses the question of how do these epidemics and pandemics affect income inequality in countries around the world during the first two decades of this century. To achieve its objective, the paper develops a model that indicates a positive association between these health crises and income inequality. To empirically test our theoretical predictions, the paper explores the effect on the Gini coefficient of a dummy variable that indicates the occurrence of an epidemic or a pandemic in a country in a given year and the number of deaths per 100,000. To properly address potential endogeneity, we implement a Three-Stage-Least Squares technique. The estimation shows that the number of deaths per 100,000 population variable has a statistically significant positive effect on the Gini coefficient, especially when we incorporate COVID-19 data. This suggests that not only the occurrence, but also the health consequences of COVID-19 have a significant and economically important effect on income inequality.BackgroundThe purpose of the study is to examine the effect of epidemics and pandemics on income inequality. This has important implications as the outcome of this study can guide policymakers into implementing policies that can mitigate the economic consequences of these health crises.MethodsThe study is a cross country analysis using fixed effects estimation. To address potential endogeneity and determine causality, the paper uses the Three-Stage-Least-Squares estimation.ResultsThe paper finds that the number of epidemic deaths per 100,000 population variable has a statistically significant positive effect on the Gini coefficient, especially when we incorporate COVID-19 data.ConclusionsThe paper finds that it is not only the occurrence of an epidemic, captured by the epidemics dummy variable, but also the health consequences, captured by the number of deaths per 100,000 population, that have a significant effect on income inequality. This is especially the case when we incorporate COVID-19 in our analysis.Trial registrationNot Applicable.

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Income Inequality and Happiness: An Inverted U-Shaped Curve.

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