Download this Paper Open PDF in Browser

On the Relation between Income Inequality and Happiness: Do Fairness Perceptions Matter?

CEGE Discussions Paper No. 91

61 Pages Posted: 10 Jan 2010  

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies

Axel Dreher

University of Heidelberg

Justina A. V. Fischer

Organization for Economic Co-Operation and Development (OECD); Stockholm School of Economics; University of Hohenheim

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics; Walter Eucken Institute

Date Written: December 21, 2009

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.

Keywords: Happiness, life satisfaction, subjective well-being, inequality, income distribution, redistribution, political ideology, justice, fairness, World Values Survey

JEL Classification: I31, H40, D31, J62, Z13

Suggested Citation

Bjørnskov, Christian and Dreher, Axel and Fischer, Justina A. V. and Schnellenbach, Jan, On the Relation between Income Inequality and Happiness: Do Fairness Perceptions Matter? (December 21, 2009). CEGE Discussions Paper No. 91. Available at SSRN: https://ssrn.com/abstract=1533278 or http://dx.doi.org/10.2139/ssrn.1533278

Christian Bjørnskov

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Axel Dreher (Contact Author)

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Justina A.V. Fischer

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

University of Hohenheim

Fruwirthstr. 48
Stuttgart, 70599
Germany

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics ( email )

Erich-Weinert-Str. 1
Cottbus, 03046
Germany

HOME PAGE: http://https://www.b-tu.de/fg-vwl-mikro/team/prof-dr-jan-schnellenbach

Walter Eucken Institute ( email )

Goethestr. 10
Freiburg, 79100
Germany

HOME PAGE: http://www.eucken.de

Paper statistics

Downloads
161
Rank
157,755
Abstract Views
823