Income distribution, happiness and satisfaction: A direct test of the interdependent preferences model

Abstract This study utilizes social-psychological measures of happiness and satisfaction in order to test the interdependent preferences model. According to this class of models, in addition to individual characteristics, utility also depends on the well-being of other members of society. Happiness and satisfaction should therefore depend on the average income of society and its distribution among rich and poor. Canadian survey data are used to test this hypothesis. Results differ across alternative measures of subjective well-being. Holding personal characteristics constant, self-reported satisfaction is lower the larger the share of income going to the poorest 40% of the community. A 3-point scale of happiness yields similar results, but not an 11-point scale. The determinants of satisfaction and happiness differ systematically between men and women. Overall, the empirical results support the interdependent preferences model, but defy any simple characterization in terms of inequality aversion and relative economic status.

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