Inequality and Happiness: Are Europeans and Americans Different?

The answer to the question posed in the title is 'yes.' Using a total of 128,106 answers to a survey question about happiness,' we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of inequality generated' unhappiness in the US only for a sub-group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.

[1]  L. Thurow.  The Income Distribution as a Pure Public Good , 1971 .

[2]  E. Ladd.  Attitudes Toward Economic Inequality , 1997 .

[3]  E. Duflo,et al.  How Much Should We Trust Differences-in-Differences Estimates? , 2001 .

[4]  R. Davidson,et al.  Prefrontal Brain Asymmetry: A Biological Substrate of the Behavioral Approach and Inhibition Systems , 1997 .

[5]  C. Schmidt,et al.  The Evaluation of Community-Based Interventions: A Monte Carlo Study , 2001, SSRN Electronic Journal.

[6]  M. Ravallion,et al.  Who wants to redistribute?: The tunnel effect in 1990s Russia , 2000 .

[7]  B. Frey,et al.  Happiness, Economy and Institutions , 2000, SSRN Electronic Journal.

[8]  Anthony B. Atkinson,et al.  Promise and Pitfalls in the Use of 'Secondary' Data -Sets: Income Inequality in OECD Countries , 2000 .

[9]  Giacomo Corneo,et al.  Individual Preferences for Political Redistribution , 2001 .

[10]  Bruno S. Frey,et al.  Does Marriage Make People Happy, or Do Happy People Get Married? , 2005 .

[11]  R. Inglehart.  The diminishing utility of economic growth: From maximizing security toward maximizing subjective well‐being , 1996 .

[12]  M Mayman,et al.  The illusion of mental health. , 1993, The American psychologist.

[13]  D. Kahneman,et al.  Economic Analysis and the Psychology of Utility: Applications to Compensation Policy , 1991 .

[14]  R. Winkelmann,et al.  Why Are the Unemployed So Unhappy? Evidence from Panel Data , 1998 .

[15]  D. Morawetz,et al.  Income Distribution and Self-Rated Happiness: Some Empirical Evidence , 1977 .

[16]  Anders Björklund,et al.  Intergenerational Income Mobility in Sweden Compared to the United States , 1997 .

[17]  Brent R. Moulton.  Random group effects and the precision of regression estimates , 1986 .

[18]  R. Easterlin.  Does Economic Growth Improve the Human Lot? Some Empirical Evidence , 1974 .

[19]  B. V. Praag,et al.  Ordinal and cardinal utility , 1991 .

[20]  L. G. Rorer,et al.  THE GREAT RESPONSE-STYLE MYTH. , 1965, Psychological bulletin.

[21]  A. Oswald,et al.  Unhappiness and Unemployment , 1994 .

[22]  Bruno S. Frey,et al.  Beyond Bentham-Measuring Procedural Utility , 2001, SSRN Electronic Journal.

[23]  M. Fordyce,et al.  A review of research on the happiness measures: A sixty second index of happiness and mental health , 1988 .

[24]  Aldo Rustichini,et al.  More equal but less mobile? Education financing and intergenerational mobility in Italy and in the US , 1999 .

[25]  R. Inglehart,et al.  Cultural values, stable democracy, and economic development: A reply , 1996 .

[26]  N. Bradburn.  The structure of psychological well-being , 1969 .

[27]  Tito Boeri,et al.  Would you like to shrink the welfare state? A survey of European citizens , 2001 .

[28]  G. Corneo.  Inequality and the State: Comparing U.S. And German Preferences , 2000, SSRN Electronic Journal.

[29]  R. Blank.  What Causes Public Assistance Caseloads to Grow? , 1997 .

[30]  A. Alesina,et al.  Preferences for Redistribution in the Land of Opportunities , 2001 .

[31]  Richard E. Lucas,et al.  Subjective Weil-Being: Three Decades of Progress , 2004 .

[32]  Robert S. Wyer,et al.  Cognitive Correlates of Subjective Well-Being: The Processing of Valenced Life Events by Happy and Unhappy Persons , 1997 .

[33]  Klaus Deininger,et al.  A New Data Set Measuring Income Inequality , 1996 .

[34]  A. Alesina,et al.  Political Cycles and the Macroeconomy , 1997 .

[35]  P. Ekman,et al.  The Duchenne smile: emotional expression and brain physiology. II. , 1990, Journal of personality and social psychology.

[36]  S. Zeger,et al.  Longitudinal data analysis using generalized linear models , 1986 .

[37]  E. Diener,et al.  Subjective well-being. , 1984, Psychological bulletin.

[38]  J. Perloff,et al.  Effects of Government Policies on Income Distribution and Welfare , 2002 .

[39]  Allan H. Meltzer,et al.  A Rational Theory of the Size of Government , 1981, Journal of Political Economy.

[40]  Y. Ng.  Happiness surveys: Some comparability issues and an exploratory survey based on just perceivable increments , 1996 .

[41]  Thomas Romer,et al.  Individual welfare, majority voting, and the properties of a linear income tax , 1975 .

[42]  D. Kahneman,et al.  Back to Bentham? Explorations of experience utility , 1997 .

[43]  Jan Tinbergen,et al.  On the measurement of welfare , 1991 .

[44]  R. Di Tella,et al.  Partisan Social Happiness , 2000 .

[45]  D. Kahneman,et al.  Well-being : the foundations of hedonic psychology , 1999 .

[46]  Andrew J. Oswald,et al.  Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness , 2001 .

[47]  Ludger Schuknecht,et al.  Public Spending in the 20th Century , 2000 .

[48]  Andrew J. Oswald,et al.  The Macroeconomics of Happiness , 2001, Review of Economics and Statistics.

[49]  Janet L. Yellen,et al.  Why Doesn't the United States Have a European-Style Welfare State? , 2001 .

[50]  Ziding Feng,et al.  Optimal Permutation Tests for the Analysis of Group Randomized Trials , 2001 .