Income Inequality and Subjective Well-Being

Abstract

AbstractUsing Chinese and Japanese longitudinal survey data, this study conducts an empirical investigation to test the absolute income and relative income hypotheses. The main conclusions are: First, for China, (1) based on the results using cross-sectional data, both the absolute and relative income hypotheses are supported—like those in most previous studies. (2) Based on fixed-effects and dynamic models, the absolute income hypothesis is not supported, while the relative income hypothesis is strongly supported. (3) The relative income hypothesis is supported among all groups. However, the effects of relative income on subjective well-being differ by group. Second, comparing the hypothesis testing results between China and Japan, both Chinese and Japanese married women supported the absolute income hypothesis. However, the testing results on the relative income hypothesis differ between China and Japan. The results indicated that to improve the Chinese subjective well-being, policies that promote economic growth and policies that reduce income inequality should be enforced by the Chinese government.KeywordsAbsolute incomeRelative incomeSubjective well-beingDynamic fixed-effects modelChinaJapan