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Does Income Inequality Influence Subjective Wellbeing? Evidence from 21 Developing Countries

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Abstract

Does income inequality matter for subjective wellbeing? Using data from 5945 individuals residing in 182 villages in rural areas of 21 developing countries, we test the relative importance of income inequality measured at different levels (country and village) in subjective wellbeing. Country-level inequality might increase subjective wellbeing because it signals potential upward mobility, whereas village-level inequality might exacerbate negative effects of local peer-group comparisons on subjective wellbeing. The two measures of income inequality are not correlated, supporting the intuition that these variables might capture different aspects of income inequality. Although we observe broad patterns that suggest inequality measured at different levels might have associations with subjective wellbeing, and with potentially differing signs, the low magnitude of these associations and their weak statistical significance do not provide enough evidence to support the argument that the level at which income inequality is measured explains overall patterns of subjective wellbeing. Our results therefore leave open for future research the question of what underlying forces might account for these observed patterns.

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Notes

  1. In this text we use the terms “happiness,” “subjective wellbeing,” and “life satisfaction” interchangeably, although we acknowledge that their meanings may differ accross cultures and contexts.

  2. GINI data used in the analysis, along with sources and years, are available from the authors upon request.

  3. When products are consumed directly without market exchange, imputing values can be a challenge (Wunder et al. 2011). We assigned values as follows (in order of priority): using the local market price; reported barter values; the price of a substitute; reported willingness to pay; prices in other markets adjusted by transport costs; and the opportunity cost of time. Any remaining missing values were replaced by average village prices, adjusting for any seasonal variation.

  4. We follow the World Bank formula (a variant of the OECD scale; see Atkinson et al. 1995): children below 15 and adults above 65 receive a weight of 0.5 and all other household members (15–65 years) receive a weight of 1.0.

  5. Relative income is centered, scaled, and defined on the unit interval: for each household we subtracted the average village income from the household’s income and divided the result by the standard deviation of village income.

  6. Börner et al. (2015) explore how households weathered these shocks.

  7. The two measures are not directly comparable, as AEU is ca. 50% higher than per capita income used in GDP, potentially overestimating the share below the national average. Additionally our measure of absolute income includes environmental income, typically underestimated in national surveys.

  8. Note that the dependence of both relative and absolute income on household size introduces correlation. In absolute terms the correlation between relative and absolute income is ρ = 0.598 p < 0.001.

  9. Not all models could be reliably estimated for all variance structures.

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Acknowledgements

Data for this article were collected under the framework of the PEN project (http://www1.cifor.org/pen). We are grateful for financial support during data collection from CIFOR, ESRC-DFID, and Danida. We acknowledge financial support for the writing stage from the program “NILS Science and Sustainability” (Grant number: 014-ABEL-IM-2013). Thanks also go to Resilient Dry Land Systems, ICRISAT-Patancheru for providing office facilities to Reyes-García. This work contributes to the “María de Maeztu Unit of Excellence” (MdM-2015-0552).

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Authors and Affiliations

  1. Institució Catalana de Recerca i Estudis Avançats (ICREA), Barcelona, Spain

    Victoria Reyes-García

  2. Institut de Ciencia i Tecnologia Ambientals (ICTA), Universitat Autònoma de Barcelona, 08193, Cerdanyola del Vallès, Barcelona, Spain

    Victoria Reyes-García & Dmitrij Minkin

  3. School of Economics and Business, Norwegian University of Life Sciences (NMBU), PO Box 5003, 1432, Ås, Norway

    Arild Angelsen

  4. Department of Agricultural Economics and Purdue Policy Research Institute, Purdue University, West Lafayette, IN, USA

    Gerald E. Shively

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  1. Victoria Reyes-García
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Correspondence to Victoria Reyes-García.

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Reyes-García, V., Angelsen, A., Shively, G.E. et al. Does Income Inequality Influence Subjective Wellbeing? Evidence from 21 Developing Countries. J Happiness Stud 20, 1197–1215 (2019). https://doi.org/10.1007/s10902-018-9992-0

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