The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment
48 Pages Posted: 9 Sep 2015 Last revised: 20 Feb 2016
Date Written: February 10, 2016
In 2001, Norwegian tax records became easily accessible online, allowing individuals to observe the incomes of others. Because of self-image and social-image concerns, higher income transparency can increase the differences in well-being between rich and poor. We test this hypothesis using survey data from 1985-2013. We identify the causal effect of income transparency on subjective well-being by using differences-in-differences, triple-differences, and event-study analyses. We find that higher income transparency increased the happiness gap between rich and poor by 29% and the life satisfaction gap by 21%. Additionally, higher income transparency corrected misperceptions about the income distribution and changed preferences for redistribution. Last, we use the estimates for back-of-the-envelope calculations of the value of self-image and social-image.
Keywords: self-image, social-image, happiness, life satisfaction, income comparisons, relative income, disclosure policy
JEL Classification: D03, D60, D31, D80, I31, K34, Z10
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