Who Becomes Unhappy when Income Inequality Increases?

Abstract

Literature has established that, on a macroeconomic level, income inequality has a negative effect on average life satisfaction. An unresolved question is, however, which income groups are harmed by income inequality. In this paper we investigate this relationship at the microeconomic level combining national indicators of income inequality with individual data of life satisfaction from the World Values Survey for 39 countries over a period of 25 years. Tests on moderation by income category show that the Gini coefficient is most negatively related to life satisfaction of the lowest income groups, but the negative effects also extends to other income groups. For the income share of the top 1% we find a similar result. These findings show that income inequality is especially a concern for the lower income groups, but that the harmful effect of income inequality also spillovers to the life satisfaction of other income groups.