Where does money matter more?

Abstract

There is much still to learn about the relationship between income and well-being, and in particular how this may depend on the economic and social context. We use Russian data to estimate individual Welfare Functions of Income, and examine two potentially context-dependent concepts: self-assessed income needs and welfare sensitivity to income (how well-being changes with income). The considerable geographical diversity in Russia provides within-country variation in GDP, inequality, population density, and unemployment. We first show that income needs exceed actual income on average in Russia, and that these needs are less sensitive to changes in income than in other countries. Second, income needs vary by individual characteristics, while welfare sensitivity does not. Welfare sensitivity is however related to the regional context. Last, our estimated contextual results help us to understand why the existing literature has produced such a wide range of results.