Inequality and Happiness: Are Europeans and Americans Different?
Alberto F. Alesina
Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Rafael Di Tella
Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)
Imperial College London - Tanaka Business School
CEPR Discussion Paper No. 2877
The answer to the question posed in the title is "yes." Using a total of 128,106 answers to a survey question about "happiness," we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of "inequality generated" unhappiness in the US only for a sub-group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.
Number of Pages in PDF File: 40
Keywords: Inequality, happiness, redistribution
JEL Classification: D31, J11, N33, N34
Date posted: July 31, 2001