GCOE Discussion Paper Series
Global COE Program

Human Behavior and Socioeconomic Dynamics
Discussion Paper No. 355

Relative income position and happiness: are cabinet supporters
different from others in Japan?

Eiji Yamamura, Yoshiro Tsutsui, and Fumio Ohtake

January 2015

GCOE Secretariat
Graduate School of Economics
OSAKA UNIVERSITY
1-7 Machikaneyama, Toyonaka, Osaka, 560-0043, Japan

Relative income position and happiness: are cabinet supporters different from others inJapan?

Eiji Yamamura (Seinan Gakuin University)
Yoshiro Tsutsui (Konan University).
Fumio Ohtake (Osaka University)

Abstract

During the period of 2001–2006, the Liberal Democratic Party (LDP) adopted amarket-oriented policy under the Koizumi cabinet. In 2006, following the formation of the first
Abe cabinet, the LDP returned to a traditional redistributive policy. We assume that the
supporters of the Koizumi cabinet had an expectation of upward income mobility via the market.
On this assumption, using data covering the Koizumi and first Abe cabinets, this paper attempts
to examine whether the effects of relative income differ between supporters and non-supportersof the Koizumi cabinet. Key findings are as follows: within the Koizumi cabinet period, a
relatively low-income position is negatively related to happiness for non-LDP supporters but not
for LDP supporters. However, under the period of the first Abe cabinet, the difference in theeffect of relative income for LDP supporters and others disappears. These results imply that an
expectation of market outcomes leads to a difference in the effect of relative income position onhappiness levels. Namely, during the Koizumi cabinet period, low-income supporters believedthat their income position would improve under Koizumi’s market-oriented policy, and during
the Abe cabinet period, low-income LDP supporters, like non-supporters, did not hold such an
optimistic view.

Keywords: Relative income, Positional concerns, Happiness, Government supporter, Japan.

JEL Classification: I31, D72

11. Introduction
It can be argued that the orientation of government policy is associated with an individual’s
overall evaluation of quality of life or subjective well-being (SWB). The subjective evaluationof an economic situation can vary according to social and political conditions. Alesina et al.
(2004) found that in the United States, inequality decreased high-income earners’ levels ofhappiness but not that of low-income earners. Previous studies have shown that happiness levels
are influenced not only by one’s own income but also by the income level of peers such asneighbors (e.g., Clark and Oswald, 1996; Luttmer, 2005). Individuals’ happiness levels seem todepend on whether their income is higher or lower than the reference group. It is widely
acknowledged that relative income in society exerts an effect on an individual’s happiness level(Clark et al., 2008). However, there has been little research to date on whether the effect ofrelative income differs according to individuals’ views of the market.
The Liberal Democratic Party (LDP) is Japan’s most consistently successful political party.
The LDP is regarded as a politically conservative party, distinctly different from Japan’s
opposition parties, which are considered progressive parties 1 . In addition to its politicalprinciples, the LDP’s economic policies have traditionally placed a high level of importance on
income redistribution, a reallocation from the urban to rural areas. In the past the LDP received
strong support from interest groups rooted in rural areas (Doi and Ihori, 2009). In contrast, otherparties such as the Socialist Party largely promote labor rights and so aim to improve labor
conditions. Despite the obvious differences in policy among political parties, the LDP’seconomic policy was similar to that of other parties in that the market mechanism was given
very little consideration. However, a market-oriented policy was later adopted under the
Koizumi cabinet, and Koizumi received great support from urban residents (a change from thatfrom rural residents). Shinzo Abe, whose first term as Prime Minister succeeded Koizumi’s,
weakened the market-oriented policy and returned to traditional LDP economic policy.
The effect of relative income on SWB has been examined previously using Japanese data
(Oshio et al., 2014). Investigations have also explored whether political preference and politicalevents are related to SWB in Japan (e.g., Tsutusi et al., 2010, Kinari et al., 2014, Tsutsui et al.,2014)2. However, existing studies have not investigated whether a change of orientation of
economic policy influences the effect of relative income on SWB. There is the possibility that1

Today, even in non-government parties, more members now hold conservative views. Consequently,

the progressive differences between the LDP and non-government parties are disappearing.
2

Social capital is related to SWB in Japan (Kuroki, 2011, Yamamura et al., 2014).

2

the effect of relative income position is asymmetric for “poorer” people and “richer” people(Ferrer-i-Carbonell, 2005)3. Ferrer-i-Carbonell (2005) used German data to show that the effectof relative income on SWB is asymmetric for West Germans and symmetric for Eastern
Germans. The case of Germany suggests that the historical background of political andeconomic conditions is related to whether the effect of relative income is asymmetric. It is
worthwhile to explore whether such an asymmetric effect possibly depends on the orientation ofa country’s economic policy. This examination is anticipated to suggest how an individual’s
expectation about the outcome of economic policy is related to SWB.
Looking at the Koizumi cabinet period, we can compare the influence of relative income
between LDP supporters and others, and this enables us to examine how and the extent to which
the effect of relative income on SWB varied under the different orientation of Japan’s economic
policy. The estimation of this paper is based on individual data from August 2005 to January
2007, covering the Koizumi and the first Abe cabinets. Using regression estimations weobtained the following results. A relatively high-income position is positively related tohappiness; this result does not change using different samples. In contrast, during the Koizumi
cabinet period, a relatively low-income position is negatively related to the happiness levels of
non-LDP supporters but not of LDP supporters. During the Abe cabinet period, a relatively low
income is negatively related to the happiness of non-LDP supporters and LDP supporters. Hence,the different effect of relative income between LDP supporters and non-LDP supporters
disappeared because of a change of orientation of economic policy.
We structure our paper as follows: we outline the meaning of the statistical estimation
changes according to political context in Japan. It is necessary to understand the politicalbackground in Japan; thus, for this purpose, Section 2 provides an overview of the politicalsituation in Japan. Section 3 explains the data used in this paper, proposes the testable
hypotheses, and presents the methodology. Section 4 reports the estimation results. Section 5
provides the conclusion of this paper.

2. Political Situation in Japan
Since coming to power in 1955, the LDP has been Japan’s dominant party4. The LDP is amajor conservative party with economic policies that have sought to ensure redistribution of
3

Existing research shows that the influence of income comparisons is asymmetric (e.g., Duesenberry,

1949; Hollander, 2001; Frank, 1985).
4

The LDP has been in power since 1955, except for two short periods in 1993–1994 and 2009–2012.

3

wealth from urban to rural areas5. In contrast, the principal policy of Junichiro Koizumi relied
upon market mechanisms to increase economic efficiency. During this time, the Koizumi
cabinet was regarded as heretical by LDP members towing the traditional LDP line. However,
Koizumi cleverly attracted media attention and gained the support of the majority of votersthroughout Japan (Yamamura and Sabatini, 2014). “Koizumi came to power via a revolt by the
LDP’s grassroots urban machine against the more rural-oriented party leadership” (Katz 2001, p.
38). Because of this overwhelming support, Koizumi’s cabinet lasted for 60 months, which was
longer than any other recent cabinet6. Koizumi is thought to have been the LDP’s most popularand influential prime minster, although there have been many political opponents. That is,
Koizumi created many divisions in the LDP and in politics in Japan.
In the 2005 election, Koizumi had a fierce showdown with other LDP members in his fightto ensure that his signature economic policy—the privatization of the postal service—was the
key election issue7. The policy was vehemently opposed by not only members of the opposition
party, but also by many LDP members8. Koizumi led the LDP to win a landslide victory,
proving that his controversial privatization policy was strongly supported by voters 9 .
Consequently, various members of the non-government party and Koizumi’s LDP opponents
lost their seats 10 . After the election, they were expelled from the LDP because of their

5

The LDP should not be confused with the now-defunct Liberal Party, which merged with the main

opposition party, the Democratic Party of Japan, in November 2003.
6

According to opinion polls, public support for Koizumi peaked at 85%, the highest rating for a prime

minister since 1989 (Yamamura and Sabatini, 2014).
7

Apart from protecting the special interest group formed by local postmasters and postal workers, there

were various reasons why that some politicians fiercely opposed postal privatization (Imai, 2009),
including fundamental ideologies on the size and role of government and factional affiliations within the
LDP.
8

The bill to privatize the postal service was rejected in the House of Councilors in August 2005. The

rebel LDP members essentially prevented the policy of postal privatization from being realized.
Consequently, Koizumi dissolved the House of Representatives (Shugi-in) and called for a generalelection to seek the public’s opinion on the bill.
9

The results of the election, however, were unlikely to have influenced the happiness levels of voters(Tsutsui et al., 2010).
10

In each constituency of the Shugi-in, only one candidate can be elected. For the purpose of avoiding

internal conflicts, each party usually nominates a candidate for a constituency. However, in the 2005
election, Koizumi broke this rule and recruited “assassin” candidates to stand against those LDP members(representing some constituencies) who did not endorse the postal privatization bill.

4

opposition to the LDP postal privatization.
Shinzo Abe became secretary-general of the LDP in September 2003 and thus played an
important role in the Koizumi cabinet. Upon the expiration of Koizumi’s term of office in
September of 2006, Abe announced his intent to run for LDP president. He was successful andcame to power establishing the first Abe cabinet as Koizumi’s successor. However, Abe did not
follow the policy of the former cabinet and gradually returned to traditional LDP policy. On theestablishment of the first Abe cabinet, the former expelled LDP members submitted a petitionand special covenant to the LDP. In November 2006, the Abe cabinet readmitted them to the
LDP. As a result, the rate of support for the LDP declined. In the House of Councilors electionof July of 2007, the LDP was defeated11. Thus, the first Abe cabinet came to an end in
September of 2007, just one year after Abe came to power. The postal rebels’ return to the LDP
disappointed the supporters of the Koizumi cabinet and the decision was regarded the main
reason for the decline in LDP support. To better understand the above political situation, let us
briefly introduce the political and economic background of Japan’s post-World War II period.
One of the key features of the Japanese electoral system should be discussed to better
understand the long-term dominance of the LDP. In an election, candidates rely heavily upon
their jiban, a strongly supportive and influential regional electoral power base (Miyake, 1989).
The interests and perceived benefits of local voters are considered key in providing strong
support for the LDP.
Prior to the emergence of the Koizumi cabinet, the LDP was considered a conglomerationof competitive factions (habatsu), engaged in bitter infighting (Cox and Rosenbluth, 1993).
Habatsu play a fundamental role in every area of LDP political activity such as candidate
nominations and the allocation of party and government posts (Köllner, 2006). Because of thesmaller population density in rural areas and higher rate of agricultural workers, farmers formed
agricultural cooperatives—essentially special interest groups—to protect and pursue theirinterests. Under an electoral system with geography-based constituencies, workers in the
agricultural sector can have an important effect on election results even if the number ofagricultural workers is smaller than those of other sectors. Therefore, politicians have an
incentive to give some attention to the agricultural sector to increase their chances of
re-election12. In Japan, politicians have been criticized for increasing expenditure on public
infrastructure to attract the support of the construction industry (Yamamura and Kondoh, 2013).
11

In addition, a huge record-keeping blunder by the Social Insurance Agency and the Ministry of Health,Labour and Welfare is also considered a reason for the decline in support for the LDP.
12Political parties attempt to direct budgetary resources into constituencies to maintain their electoral
position (Kawaura, 2003; Meyer and Naka, 1998, 1999).

5

For instance, some argue that public infrastructure has been excessively developed in rural areas,
reducing economic efficiency. This is thought to be the reason why “larger amounts are spent on
public works than in other countries, controlling for size and population” (Doi and Ihori 2009, p.
181). For example, Japan’s public postal service was well established in low-population density
areas even though it was inefficient from an economic viewpoint. However, the number ofpossible votes from the postal service sector was sufficiently large and therefore LDP politiciansrelied heavily upon these in the election. Thus, the LDP placed significant importance on
protecting the agricultural sector and postal service for the sake of rural populations. LDP
members of the Diet also formed committees called “policy tribes” (zoku-giin), which played
critical roles in providing support in electoral campaigns13. The strong electoral support fromthese groups enabled the LDP to maintain a one-party cabinet in the post-World War II period.
In addition to the LDP, parties such as the Socialist Party relied heavily on the votes
gathered from the labor unions; these parties pursued labor rights and the improvement of labor
conditions. Hence, such parties were strongly supported by the labor union, considered a special
interest group. The labor union is not limited to a particular area or industry. That is, politiciansbelonging to the Socialist Party did not rely upon a supportive network limited to rural areas andtherefore had no incentive to care for any particular local industry. Thus, these parties aimed toredistribute income from the capitalist class to the labor class. The LDP and other parties shareda similar view in that they placed greater importance on income redistribution than the
improvement of economic efficiency through the market. That is, before the Koizumi cabinet
was established, the politically conservative LDP and other politically progressive parties shareda similar anti-market view, despite their obviously different political views. This might reflect
the fact that Japanese are less likely to rely on the market mechanism than other developed
countries (Ohtake, 2010).
Koizumi proposed an intensive program of neoliberal reforms14. Koizumi’s policy had theobjective of revitalizing the Japanese economy. In addition, his political message aimed to
disconnect the ties among politicians, bureaucrats, and protected industries. Koizumi also
believed that prices, profits, and employment levels should be governed by market forces rather
than by a bargaining process between the political establishment and business organizations.
LDP supporters were roughly divided into two groups: supporters who expected to benefit from
13

The relationships among politicians, bureaucrats, and private companies are sometimes described as an“iron triangle” (Sakakibara, 2003).
14

The reforms included the deregulation of industries (especially “protected” ones), the reduction of

government size and public spending, and the privatization of public corporations.

6the redistribution policy under a traditional LDP and supporters who expected to benefit under
the reform proposed by the Koizumi cabinet.

3. Data and Hypothesis
3.1

Data

With the aim of analyzing the relation between political factors and happiness, interview
surveys were conducted every month throughout Japan for 32 months, from August 2005 to
March 2008. During these 32 months, the LDP was the governing party and three prime
ministers governed Japan15: the Koizumi cabinet held power at the start of the interview period,
from August 2005 to September 200616, and the first Abe cabinet sat from September 2006 to
September 2007, lasting only one year. Of Japan’s various cabinets, the Koizumi cabinet
represents the longest running government, in power since April 2001 for five and a half years.
However, in the data, respondents were only asked to report their income level for a 19-month
period from August 2005 to January 2007. Income level is the key variable in this analysis andso the sample used for estimation in this paper was limited to this period. The collection of data
is based on the random sampling method and respondents are male and female adults aged over
20 years17. In each month, the questionnaire asked more than 1,000 respondents about theirhappiness, favored political parties, and their attributes, such as sex, age, school career,occupation, residence location, city size, as well as his or her view on the state of business.
Questions concerning the key variables are detailed below. The question about happinesslevel asked: Please remember how you felt in this one week. To what degree were you feeling
happy in the last week? On a scale of 0–10, where “10” is “very happy” and “0” is “veryunhappy,” how do you rate your level of happiness in the last week?
Table 1 presents the definitions of the variables used in this paper, as well as their basic
statistics such as mean values, standard deviation, and maximum and minimum values (there isa distinct difference between these two values) during the study period. Following previous
research (Ferrer-i-Carbonell, 2005, Fischer and Torgler, 2013), relative income position isdefined as the difference between a respondent’s income and the income of the reference group.
This paper takes a geographic approach to reference groups following earlier studies
15

These were Koizumi, Abe and Yasuo Fukuda.

16

The LDP has been in a coalition partnership with New Komeito since 1999. New Komeito changed its

English name to Komeito in September 2014.
17

New respondents were selected every month and therefore the data are not panel data.

7

(Blanchflower and Oswald, 2004, Luttmer, 2005, Graham and Felton, 2006). In this paper, thereference group is the median income in the prefecture where the respondent resided. A
relatively high (low) income is the absolute value of the difference between the respondent’s
income and the median income of the reference group. A relatively high (low) income is 0 when
the respondent’s income is lower (higher) than the median income. Median annual income
within a residential prefecture varies from 1.50 million yen to 5.50 million yen, indicating thatthe level of the median income in the prefecture with the highest income is approximately threetimes that in the prefecture with the lowest income. In contrast, the mean annual income withina residential prefecture varies from 2.40 million yen to 6.31 million yen. Therefore, thedifference of the mean income between them is almost the same. Estimation results possibly
depend on the reference income group within a residential prefecture. For a robustness check,
we also used the relative income, which is calculated by using mean income as the reference
and then conducting the estimation. Estimation results based on the alternative measure of
relative income are similar to those obtained using the relative income based on median income.
Therefore, the results using the alternative relative income are not exhibited in this paper18. The
rate of supporters for the LDP was 23%, which is far from being a majority. This conveys thatfloating votes play a critical role in election results.
Intuitively, high earners are less likely to prefer income redistribution through progressive
tax. In other words, those who support the party to promote market liberalization are thought tobe high earners. In contrast, low-income earners prefer a policy of income redistribution
because they will enjoy the benefits of such policy. If this holds true, there is a difference ofcomposition of income groups between LDP supporters and others. However, we see from Table
2 that the rate of low-income earners is almost same for LDP supports and others, although therate of high-income earning LDP supporters is 3% higher than that of others. All in all, thecomposition of the income groups of LDP supporters does not differ from that of others.
Therefore, the sample of LDP supporters is comparable with that of others.

3.2

Hypotheses
An individual’s expectation of income mobility is thought to influence SWB (Alesina et al.,2004). Piketty (1995) built a number of theoretical models to indicate that expectations of
upward and downward mobility play an important role in determining individual attitudes
toward redistribution. Bénabou and Ok (2001) provided the “prospect of upward mobility”
hypothesis, where people who expect to move up the income scale will not favor a distributive
18

The results of the alternative specification are available upon request from the corresponding author.

8

policy even if they are currently poor; this hypothesis is empirically supported by prior studies(Alesina and La Ferrara, 2005; Rainer and Siedler, 2008). If these hold true, the happiness levelsof relatively low-income earners is not lower than the median income group when they expect
to move up the income ladder. Furthermore, the reason why low-income earners supported the
Koizumi cabinet is assumed to be that they expected the policy to increase their income throughthe market mechanism. Hypothesis 1 is proposed below:

Hypothesis 1: The negative effect of relatively low income on the happiness levels of non-LDP
supporters is stronger than for LDP supporters.

As mentioned in section 2, the LDP traditionally cared for rural areas because it was backed byvarious interest groups to pursue benefits for rural areas. The LDP enhanced market
liberalization by following the economic aims of Prime Minister Koizumi during the Koizumi
cabinet period. However, the first Abe cabinet returned to traditional LDP policy, revisiting theredistribution of funds from urban to rural areas. Thus, the low-income earners that supported
the Abe cabinet were unlikely to expect their income to increase, leading them to be unhappy.
Therefore, we provide Hypothesis 2:

Hypothesis 2: The difference between the relative income effect of LDP supporters and non-LDP
supporters decreased when LDP supporters did not expect their income to increase under the
first Abe cabinet.

3.3

MethodThe aim of the present study is to examine the effect of relative income and income

inequality on Japanese happiness levels. That is, to test the Hypotheses proposed above, theestimated function takes the following form:
Happiness ist = α0 + α1 Median income s + α2 MHigh income ist + α3 MLow income ist + α4 Age ist+ α4 Age square ist + α5 High school ist + α6 University ist + α7 Man ist + α8 Stock price t + α9
Subjective economy ist + α10 Support LDP ist + u ist,
where Happiness ist represents the dependent variable in individual i, prefecture s, and year t.
For detailed definitions of the variables, refer to Table 1. The regression parameters are denoted
by α, and the error term is by u. In this model, we regard the self-reported happiness level of an9individual i as a function of the relative income position of that individual in prefecture s.
Following the research of Ferrer-i-Carbonell (2005), Median income, MHigh income, and MLow
income are included to separate the effect of relative income from that of absolute income. If a
relatively high income is positively related to happiness levels, MHigh income will be positive.
In contrast, if a relatively low income is negatively related to happiness levels, MLow income
will be negative. To examine Hypothesis 1, the sample is divided into a LDP supporter group
and a non-LDP supporter group for the estimations. Furthermore, to examine Hypothesis 2, LDP
supporters and non-LDP supporters are divided into samples under the Koizumi cabinet period
and the first Abe cabinet period. Various individual characteristics are incorporated as
independent variables. Age and its square are included to control for an individual’s age. Highschool and University are included as proxies for human capital. To capture the economic
situation, Stock price (the stock price at the beginning of the month) and Subjective economy(subjective views about Japan’s economy) are included. Macroeconomic expansion in Japan
makes people expect that their individual income will increase and so improve their happiness.
In addition, occupation dummies, scale of area of residence, and year dummies are included ascontrol variables.

4. Results
4.1. Preliminary Analysis
Prior to discussing the results of the regression analysis, we first discuss the results of thesimple statistical analysis. Using the data, Figure 1 shows an association between the averagevalues of MHigh income and the average values of happiness in each prefecture. Furthermore,
Figure 2 shows an association between the average values of MLow income and the averagevalues of happiness in each prefecture. The positive and negative relationships are observed in
Figures 1 and 2, respectively.
Table 3 presents the mean difference of happiness levels between LDP supporters andnon-LDP supporters for high-income, median income and low-income groups. The happinesslevel of the high-income group is higher than that of the median income group. The happinesslevel of the median income group is higher than that of the low-income group. It is surprising toobserve that the difference is not statistically significant for LDP supporters whereas thedifference is statistically significant at the 1% level for non-LDP supporters. Furthermore, for
non-LDP supporters, the difference between the median income and the low-income groups is
0.33, which is larger by 0.09 points than that between the high-income and median income
groups. The happiness level differs between income groups for non-LDP supporters but not for

10

LDP supporters. From this comparison, we derive the argument that the current income level isstrongly related to happiness levels for non-LDP supporters but not for LDP supporters. Turning
to the comparison between LDP supporters and non-LDP supporters, in all income groups, thehappiness level of LDP supporters is higher than for non-LDP supporters. Its difference isstatistically significant, which is consistent with Tsutsui et al. (2014). It is also interesting toobserve that the difference in happiness levels is 0.15 points for the high-income group, 0.29
points for the median income group, and 0.50 points for the low-income group. That is, thelower one’s income level is, the larger the difference of happiness levels between LDP
supporters and non-LDP supporters. This is consistent with Hypothesis 1.
Table 4 shows the rate of support for the LDP by area. During the Koizumi cabinet period,
the rate is approximately 27% in urban and other areas. In contrast, during the first Abe cabinet
period, the rate decreased to 24.1% in urban areas but increased to 29.4% in other areas. This isinterpreted to reflect the change in policy. Therefore, compared with the period of the Koizumi
cabinet, low-income LDP supporters during the first Abe period were likely to prefer income
redistribution and were unhappy. This is in line with Hypothesis 2.

4.2. Regression Analysis

Tables 5 and 6 report the estimates obtained from the OLS model. The dependent variable
discretely ranges from 0 to 10 and is therefore ordinal. In this case, the ordered probit model ispreferable. The variable’s coefficients cannot be interpreted as marginal effects and only suggest
whether the variable has a positive (negative) effect. “Without a fair amount of extra calculation,
it is quite unclear how the coefficients in the ordered probit model should be interpreted”(Greene 2008, 833). Hence, for convenience of interpretation, an OLS model is used in thisstudy. The signs of the coefficients and their statistical significance based on the OLS model are
the same as those using the ordered probit model; the results of the ordered probit model are notreported19.
We begin by discussing the results in Table 5. Results based on the full sample are shownin column (1), while results based on the sample of LDP supporters and that of non-LDP
supporters are in columns (2) and (3), respectively. We see from the column (1) that thecoefficient of MHigh income is positive whereas that of MLow income is negative. Furthermore,they are statistically significant at the 1% level, which is consistent with Figures 1 and 2. These
results reveal that people with an income level above (below) the median income of the
19

Results using the ordered probit model are available upon request from the corresponding author.

11

residential prefecture are more (less) likely to be happy than median income earners. Even after
dividing the sample into two groups, the signs of MHigh income and MLow income do notchange. MHigh income continues to be statistically significant at the 1% level regardless of
respondents’ political views. However, MLow income is statistically significant only for
non-LDP supporters. This implies the following: people with an income level below the medianincome of the residential prefecture do not feel unhappier than median income earners if they
support the LDP. Thus, the results in Table 5 strongly support Hypothesis 1. Furthermore, thecoefficient of MHigh income is approximately 0.06 in columns (1) and (3) and 0.05 in column(2). Thus, the effect of a relatively high income does not change according to people’s politicalviews. The value of the coefficient of MHigh income in column (3) means that an increase of 1
million yen from the median income results in an increase in happiness by 0.06 points on the
10-point scale for non-LDP supporters. The coefficient of MLow income is approximately −0.10
in column (1) and −0.12 in column (3). The results in column (3) mean that a 1-million yen
decrease from the median income results in a decrease in happiness level by 0.12 points on the
10-point scale for non-LDP supporters. Considering the results for both MHigh income andMLow income, we can argue that the effect of a relatively low income on happiness level isapproximately two times larger than that of a relatively high income. Therefore, the effect ofrelative income position between poorer and richer individuals is asymmetric. In contrast to ourfindings, Duesenberry (1949, Chap. 2) asserted that that poorer people become unhappy whenlearning that their income is below that of their reference group, whereas richer individuals do
not become happy from knowing their income is above that of their reference group.
Duesenberry (1949, Chap. 2) also argued that progressive income taxes are necessary forallocational efficiency. This might be because Duesenberry (1949) did not take into accountexpectations of upward income mobility. If people have such an expectation, inequality does not
reduce the happiness of low-income earners (Alesina et al., 2004). Thus, a relatively
low-income position is not negatively associated with one’s happiness level.
With respect to the results of other control variables in Table 5, the coefficients of Age andAge squared are negative and positive, respectively. Furthermore, they are statisticallysignificant in all columns. This indicates that the relationship between age and happiness is
U-shaped, as often found in happiness literature (Clark and Oswald, 1996; Blanchflower and
Oswald, 2004; Kuroki, 2011). The coefficients of High school and University are positive in allcolumns. High school and University are statistically significant at the 1% level in columns (1)and (3). In contrast, High school is not statistically significant at the 5% level in column (2)although University is. The value of the coefficient of University is also 0.31 in column (2) and12

0.46 in column (3). This implies that the happiness levels of those who graduated fromuniversity is higher by 0.31 (0.46) points than those who graduated from junior high school ifthey are LDP supporters (non-LDP supporters). All in all, the effect of education on happinesslevels is larger for non-LDP supporters than LDP supporters. This shows that happiness levels
are less likely to depend on education for LDP supporters. Education level is regarded as an
initial condition and does not change. If this effect determines future income levels,
low-educated people cannot improve their income level. However, the estimation results areinterpreted to imply that low-educated LDP supporters expect their income to increase. This is
in line with the fact that happiness levels are less inclined to depend on current relative income
for LDP supporters. In our interpretation, the initial and current condition is less likely to
influence happiness levels if people expect that the condition will improve in the future throughthe market mechanism. Concerning macroeconomic factors, Subjective economy is significant
and positive in all columns, which is consistent with expectations. However, the sign of Stockprice varies according to columns, and it is not statistically significant in any columns. The
coefficient of LDP is positive and statistically significant at the 1% level. Hence, LDP
supporters were happier than non-LDP supporters, which is consistent with Tsutsui et al. (2014).
We now turn to Table 6 where the results of the key variables are reported, although othercontrol variables are included as independent variables. Regarding the results based on the
Koizumi cabinet period, the results are almost the same as those reported in Table 5. However,in the first Abe cabinet period, the impact of relative income has obviously changed. As isreported in column (4), the coefficients of MHigh income and MLow income are positive andnegative, respectively, and are statistically significant at the 1% level. The absolute values of thecoefficients are 0.05 and 0.14 for MHigh income and MLow income, respectively. Therefore, thedegree of the effect of MLow income is approximately three times larger than that of MHighincome. The difference between them comes from an increase in the absolute effect of MLow
income. We interpret this as suggesting that low-income earners are less likely to expect anincrease in income and an improvement in economic conditions. It is striking to observe that thecoefficient of MLow income is significant and negative not only for non-LDP supporters but
also for LDP supporters. Furthermore, its absolute values are 0.16 for LDP supporters and 0.13
for non-LDP supporters. Hence, the effect of a relatively low income is slightly larger for LDP
supporters. Overall, relative income effects are almost the same for LDP supporters andnon-LDP supporters. This suggests that the difference of the effects of relative income between
them disappeared in the first Abe cabinet period. These results are congruent to Hypothesis 2.
What is more, whereas the effect of a relatively high-income position continues to be positive,

13

that of a relatively low-income position becomes negative when the prime minister changed
from Koizumi to Abe. In other words, the effect of the relative income position between thepoor and rich during the first Abe period became more symmetric than that during the Koizumi
period. Turning to the key control variable, Subjective economy, it continues to be significant
and positive in all columns. As a whole, the absolute values of the coefficients of Subjective
economy are smaller in the first Abe cabinet period than in the Koizumi cabinet period. One
interpretation of this result is as follows: people were less inclined to expect that amacroeconomic boom would lead to an increase in individual income under the first Abe
cabinet period because they did not consider the market to function well.

5. Conclusion
Japan’s longstanding governing party, the LDP, is based on a conservative political spirit
and has formed a significant conservative force. Furthermore, historically, it pursued a policy ofredistribution from rich urban areas to poor rural regions to attract votes. For instance, the LDP
adopted a policy to protect the agricultural sector to obtain support from agriculturalorganizations, essentially representing special interest groups. However, the situation drasticallychanged after Koizumi became prime minister in 2001, when he adopted a market-oriented
policy. Cabinet’s policy orientation changed again when Abe came to power and returned to a
“traditional LDP” methodology. He was politically conservative but placed significant emphasis
on a return to a redistribution policy. Such a change in Japan’s political situation, we believe,
affected the impact of relative income position on happiness levels.
Using individual data from August 2005 to January 2007 in Japan, this paper attempts to
examine whether the effects of relative income and income inequality differ based on whether
respondents support the LDP. Our key findings are outlined below. During the study period, a
relatively high income is positively related to happiness regardless of the respondent’s support
for the LDP. A relatively low income is negatively related to happiness. Such a tendency isobserved if respondents do not support the LDP; in contrast, it is not observed if respondents
support the LDP. These results imply that differing expectations of an increase in income
mobility via the market lead to differences in the effect of relative income on happiness levels.
Furthermore, after splitting the sample into two periods, the Koizumi cabinet and the first Abe
cabinet, the results based on the sample of LDP supporters differs between the periods. However,
the results based on the sample of non-LDP supporters do not change. The relative income
effect for LDP supporters becomes similar to that of non-LDP supporters under the first Abe

14period. These results can be interpreted as implying that low-income LDP supporters expected
upward income mobility via the market under the Koizumi cabinet, but not under the first Abe
cabinet. Thus, low-income earners supported the LDP because they held that expectation under
the Koizumi cabinet. In contrast, they did not expect any improvement of income position under
the first Abe cabinet.
It is unclear whether the orientation of economic policy changes an individual’s
expectation of upward income mobility because there is the possibility that the composition of
cabinet supporters changed as a consequence of the change of policy. This theory could be
examined using panel data covering different cabinets. Of course, there is also the possibly
endogenous bias because the causality between happiness and relative income is ambiguous. To
scrutinize the effect of relative income position on happiness, it is necessary to use instrumental
variables to solve any endogenous bias. An experimental approach could also be useful in thisregard. These issues remain to be addressed in future research.

15

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18

Figure 1. Association between happiness and relative higher income

Figure 2. Association between happiness and relative lower income

Table 1. Definitions of variables used for the estimation and its mean, standard deviation, maximum and minimum values
Max

Min

6.32

Standard
deviation
1.94

10

0

4.41

0.83

5.50

1.50

1.35

2.22

12.5

0

0.88

1.23

4.50

0

Age

Absolute value: respondent’s annual income−median annual income
within prefecture (million yen)
The value is 0 if median income is higher than respondent’s income
Absolute value: respondent’s annual income−median annual income
within prefecture (million yen)
The value is 0 if median income is lower than respondent’s income
Ages

51.4

16.6

99

20

Age square

Square of ages

----

----

----

Stock price

Stock price (10,000 yen)

1.587

0.15

1.81

1.19

Subjective
EconomyMan
High school

View of Japan’s economy
1 (certainly bad) to 5 (certainly improved)
1 if respondent is male, otherwise 0
1 if respondent graduated from high school, otherwise 0

2.82

0.66

5

1

0.47
0.51

-------

1
1

0
0

University

1 if respondent graduated from university or graduate school,otherwise 0
1 if respondent supports the LDP, otherwise 0.

0.32

----

1

0

0.23

----

1

0

Happiness
MedianIncomeMHighincomeMLowincomeLDP

Definitions

Mean

The degree of happiness
Question: How would you rate your current level of happiness?
0 (very unhappy) to 10 (very happy)
Median annual income within prefecture (million yen)

Note: Gini coefficients are sourced from the Statistics Bureau (Ministry of Internal Affairs and Communications).
http://www.e-stat.go.jp/SG1/estat/List.do?bid=000000640081&cycode=0. (accessed on August 27, 2014). Stock price obtained frommonthly data from the Nihon Keizai Shimbun (Nikkei, a Japanese economic newspaper). http://indexes.nikkei.co.jp/nkave/archives/data.
(accessed on August 23, 2014).

Table 2. Composition of income level between LDP supporters and non-LDP
supporters (%)
LDP supporters

Non-LDP supporters

Higher than medianincomeMedian income

44.3

41.7

10.7

12.9

Lower than medianincome45.0

45.4

Note: Median income in the prefecture where respondents live is used.

Table 3. Mean difference test of happiness levels between LDP supporters and non-LDP supporters

Higher than median income(I)
Median income(II)
Lower than median income(III)
Difference of happiness level(I)–(II)t-values(I) versus (II)Difference of happiness level(II)–(III)t-values(II) versus (III)LDP
supporters
(1)
6.64

Non-LDPsupporters
(2)
6.48

Difference
happiness level(2)–(1)
0.15

6.53

6.24

0.29

2.25**

6.41

5.91

0.50

7.52***

0.10

0.24

0.89

3.45***

0.12

0.33

0.99

4.34***

Note: Median income in the prefecture where respondents live is used.
*, ** and *** indicate significance at the 10%, 5% and 1% levels, respectively.

oft-values
2.56**

Table 4. Comparison of the rate of LDP supporters between rural and urban areas (%)

Koizumi cabinet
August 2005–August 2006
Abe cabinet
September 2006–January 2007

Urban

Others

27.1

27.2

24.1

29.4

Note: Urban areas are defined as the Tokyo metropolitan area and Osaka Prefecture.

Table 5. Dependent variable is happiness level (OLS model)(1)All

R-square−0.08(−0.99)0.06***(6.81)−0.10***(−5.32)−0.03***(−3.56)0.0003***(3.46)
0.23***(3.48)
0.40***(5.34)−0.38***(−7.89)−0.02(−0.12)0.28***(8.69)
0.28***(6.60)
0.07

Observations

9552

MedianincomeMHighincomeMLow income
Age
Age squareHigh school
University
Man
Stock price
Subjective
Economy
LDP

(2)
LDP
supporter−0.25(−1.13)0.05***(3.34)−0.06(−1.64)−0.03*(−1.93)0.0003**(2.02)
0.11(1.06)
0.31**(2.44)−0.43***(−4.81)
0.11(0.29)
0.33***(5.84)(3)
Non-LDPsupporter−0.02(−0.23)0.06***(5.89)−0.12***(−5.39)−0.03***(−2.73)0.0003**(2.57)
0.30***(3.46)
0.46***(4.77)−0.37***(−6.36)−0.14(−0.54)0.26***(6.60)

0.09

0.07

2792

6760

Note: Numbers in parentheses are t-values calculated using robust standard errors. *, **and *** indicate significance at the 10% 5% and 1% levels, respectively. Occupation
dummies, scale of area of residence, year dummies and constants are included but theresults are not reported. Coefficients of stock price are calculated based on the values ofstock price in units of 10,000 yen.

Table 6. Dependent variable is happiness level (OLS model): Sub-sample estimation

R-squareKoizumi cabinet(2)
LDP
supporter−0.17*−0.30(−1.67)(−1.19)0.06***
0.05***(5.68)(2.97)−0.09***−0.02(−4.14)(−0.54)−0.07
0.07(−0.34)(0.18)
0.29***
0.35***(7.86)(5.37)
0.28***(5.68)
0.08
0.10

Observations

7116

(1)
All
MedianincomeMHigh income
MLow income
Stock price
Subjective
Economy
LDP

2093

0.07

First Abe cabinet(5)
LDP
supporter
0.21
−0.15
(1.33)(−0.36)0.05***
0.06*(3.40)(1.95)−0.14***−0.16**(−3.46)(−2.16)3.54
13.8(0.47)(0.97)
0.24***
0.29**(3.63)(2.30)
0.28***(3.30)
0.08
0.15

5023

2436

(3)
Non-LDPsupporter−0.12(−1.03)0.06***(4.87)−0.12**(−2.03)−0.21(−0.76)
0.27***(5.93)

(4)
All

699

(6)
Non-LDPsupporter
0.32*(1.79)
0.06***(2.86)−0.13***(−2.80)1.53(0.17)
0.22***(2.77)

0.09
1737

Note: Sample is divided into the Koizumi cabinet (August 2005–August 2006) and the first Abe cabinet (September 2006–January2007). Numbers in parentheses are t-values calculated using robust standard errors. *, ** and *** indicate significance at the 10%
5% and 1% levels, respectively. All control variables used in Table 5 are included but the results are not reported.