| By: |
Ifcher, John (Santa Clara University);
Zarghamee, Homa (Barnard College);
Graham, Carol Lee (Brookings Institution) |
| Abstract: |
We develop a theoretical framework that considers four distinct explanatory
channels through which neighbors' income could affect utility: public goods,
cost of living, expectations of future income, and the direct effect (relative
income hypothesis (RIH) and altruism). The relationship is theoretically
ambiguous. We then empirically estimate the relationship with subjective
well-being (SWB) data from the U.S. Gallup-Healthways Well-Being Index and
geographically-based median-income data from the American Community Survey for
both ZIP codes and MSAs. We find that the sign is proximity-dependent: the
relationship is positive (negative) when using ZIP-code (MSA) median income as
the reference income. This suggests that positive channels dominate locally
while negative channels dominate regionally. These findings are consistent
across multiple SWB measures and a wide range of health-related indices, for a
variety of specification checks, and for most subgroups. Conditioning on
explanatory-channel proxies, we find that the relationship between SWB and
neighbors' income is either nullified or rendered positive, suggesting that
the RIH is either inoperant or offset by altruism. Of the other channels, the
public-goods channel is operant at the ZIP-code- and MSA-levels, and the
cost-of-living channel is operant at the MSA-level. |
| Keywords: |
subjective well-being, relative income hypothesis, others' income, reference group, relative utility, income comparison, happiness |
| JEL: |
D6 D31 I31 |
| Date: |
2016–05 |
| URL: |
http://d.repec.org/n?u=RePEc:iza:izadps:dp9934&r=hap |