Abstract
This paper studies the impact of self-perceived relative income on subjective well-being (SWB) using data from China. The results show that perceiving a lower relative income in comparison with different reference groups leads to lower life satisfaction and happiness. The effect of the self-perceived relative income on SWB is monotonic—the lower the position of an individual in income comparisons, the larger the negative effect. In addition, favorable and unfavorable relative income positions have asymmetric impacts on life satisfaction, but not on happiness. The results hold when controlling for individual fixed effects by utilizing the panel structure of the data.
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