Income Distribution and Subjective Happiness: A Survey

This survey summarises the insights that the new literature based on subjective data has shed on the issue of income inequality and income comparisons. It reviews the various channels that relate income distribution and subjective well-being. It considers the welfare effect of income gaps in general, both in terms of the difference between individual income and the income of some relevant other, and with regard to generic income distribution. Concerning income comparisons, the general lesson is that it is useful to distinguish status effects from signal effects: income comparisons hurt, but they may also increase life satisfaction when they mean good news; this is all the more likely as the reference group is made of people who most likely share a common destiny. Concerning income distribution in general, the relationship with subjective well-being is generally found to be negative, with higher societal inequality being associated with lower subjective well-being. There are many possible pathways which may lie behind such an empirical finding. The first type of aversion to income inequality derives from self-centred motives, such as risk-aversion and prospects for upward mobility (POUM). Both stem from a perception of the income distribution as a ladder that one risks falling from or has a chance to climb. Attitudes to inequality are also sometimes found to be based on other-regarding preferences such as fairness and reciprocity, which are generally independent of the income position of the individual himself. An important point is that subjective attitudes are the joint output of preferences and beliefs concerning income distribution in society. The demand for redistribution is higher whenever people have strong preferences for equal outcomes or opportunities but believe that in the society in which they live, outcomes or opportunities are actually not equal. As illustrated by several studies, preferences and beliefs concerning income distribution are context dependent and are thus heterogeneous across countries and groups of the population. Cet article presente une revue de la litterature consacree au lien entre inegalites de revenu et bien-etre subjectif. Elle resume les apports des etudes empiriques fondees sur l’exploitation des donnees subjectives disponibles dans les grandes enquetes aupres de la population. Elle considere l’effet des ecarts de revenu au sens etroit – comparaisons avec le revenu d’un groupe de reference – et au sens large – effet des inegalites de revenu en general. Les etudes relatives aux comparaisons de revenu mettent en lumiere deux phenomenes differents : les effets de statut (envie), dont l’impact sur le bien-etre subjectif est negatif, et les effets de signal, dont l’impact est positif. L’effet de signal est lie au contenu informationnel du revenu d’autrui ; il est d’autant plus important que les membres du groupe de reference partagent un grand nombre de caracteristiques productives, donc des perspectives professionnelles communes. Concernant la repartition generale des revenus dans la societe, les travaux empiriques conduisent generalement a l’etablissement d’une relation negative entre inegalite des revenus et bien-etre subjectif. Les phenomenes en jeu sont multiples. Un premier type d’attitude vis-a-vis des inegalites de revenus releve de l’aversion au risque ou des perspectives de mobilite ascendante. Dans les deux cas, l’echelle des revenus est percue par les individus d’un point de vue autocentre, en tant que chance d’ascension ou risque de chute. Cependant, un grand nombre de travaux empiriques suggere egalement l’existence de preferences concernant le revenu d’autrui. Plus precisement, l’attitude vis-a-vis des inegalites depend de la conjonction entre les croyances et les preferences des agents concernant la formation des inegalites. La demande de redistribution est ainsi plus forte lorsque les agents expriment une preference pour l’egalite des revenus ou des opportunites, mais estiment que cette egalite n’est pas realisee dans les faits. Certaines etudes illustrent alors l’heterogeneite des preferences et des croyances selon les pays et les groupes sociaux.