Income inequality, economic growth, and subjective well-being: Evidence from China

Abstract

Cross-national and longitudinal studies have previously shown mixed results on income inequality and life satisfaction, as income inequality is associated with other social trends that may affect life satisfaction differentially. This article examines the impact of income inequality on subjective wellbeing in China, where sharply rising inequality has been accompanied by rapid economic growth over the past decades. Based on a series of Chinese General Social Survey (CGSS) data, we show that life satisfaction increased from 2003 to 2010, despite a dramatic rise in income inequality during the same period. Cross-sectional analysis of the CGSS in 2005, matched with prefectural-level statistics, reveals that the local economic growth rate has a positive effect, but local income inequality has a negative effect, on individuals’ life satisfaction. Provincial panel data analysis further confirms the negative effect of income inequality on life satisfaction at the aggregate level. Our findings help to clarify the mixed results in previous studies and point to the importance of both economic and social policies in improving subjective well-being in China’s transitional economy.