Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 451: Absolute vs Relative Income and Life Satisfaction

Jonna Rickardsson () and Charlotta Mellander ()
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Jonna Rickardsson: Jönköping International Business School (JIBS)
Charlotta Mellander: Jönköping International Business School (JIBS) & Centre of Excellence for Science and Innovation Studies (CESIS)

Abstract: This paper examines whether subjective life-satisfaction is most strongly related to absolute or relative income in terms of either proximal neighbors or a wider aggregated region. The analysis utilizes two unique datasets - survey data on happiness in combination with fine-level income data for postal codes and municipalities. We find a significant relationship between happiness and both personal income and relative income position among nearby neighbors and more remote neighbors. Hence, being rich as well as being richer than others in the area increases the likelihood of being more satisfied with life. Above all, we find individuals’ level of life-satisfaction to be more strongly related to the income of people in the larger municipality than to the income of nearby neighbors.

Keywords: Life-satisfaction; Happiness; Subjective well-being; Absolute income; Relative income

JEL-codes: I31; O15; P46; R10

28 pages, March 17, 2017

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