Subjective Income Inequality and Happiness: A Case study of Pakistan

Abstract

This study measures the relationship between subjective income inequality, happiness, and other factors in Pakistan. This study is the first of its kind in Pakistan, where it has determined the relationship between subjective income inequality and happiness. The data was taken from the World Values Survey database, where data of wave 7, i.e., 2018 for Pakistan, was chosen from 2017-2021. The sample size consisted of 1399 individuals. The theories that supported the results were the Tunnel Effect Theory and Multiple Discrepancy Theory. The Ordinal Probit Model was used due to the categorical nature of dependent and explanatory variables. The study at hand encompasses multiple independent variables such as health, gender, age, social class (subjective), satisfaction with the financial situation of the household, income inequality vs large income difference, and income level whereas happiness is the dependent variable. Findings revealed that Subjective income inequality (p<0.10), social class (p<0.10), and satisfaction with financial household condition (p<0.05) significantly affect individual happiness. However, objective income (p>0.10), gender (p<0.05), and age (p>0.05) do not have a significant impact on happiness. These findings support our stated hypotheses. Multiple discrepancy theory proved significant as objective income did not affect happiness, whereas subjective income did. Health, which is subjective did not affect happiness as well. Hence, it recommended that individuals must not measure their income subjectively as it would lower their happiness, it must instead be determined objectively.