Verme, Paolo2012-03-192012-03-192011-02-01https://hdl.handle.net/10986/3341Do people care about income inequality and does income inequality affect subjective well-being? Welfare theories can predict either a positive or a negative impact of income inequality on subjective well-being and empirical research has found evidence on a positive, negative or non significant relation. This paper attempts to determine some of the possible causes of such empirical heterogeneity. Using a very large sample of world citizens, the author tests the consistency of income inequality in predicting life satisfaction. The analysis finds that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes in regressors and estimation choices and also persists across different income groups and across different types of countries. However, this relation is easily obscured or reversed by multicollinearity generated by the use of country and year fixed effects. This is particularly true if the number of data points for inequality is small, which is a common feature of cross-country or longitudinal studies.CC BY 3.0 IGOBENCHMARKCAPCOUNTRY DUMMIESCOUNTRY LEVELCROSS-COUNTRY DATACROSS-COUNTRY STUDIESCROSS-COUNTRY STUDYDATA SETDATA SETSDEPENDENT VARIABLEDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDISPOSABLE INCOMEDISPOSABLE INCOMESECONOMETRIC ANALYSISECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC INEQUALITYECONOMIC OUTLOOKECONOMIC RESEARCHECONOMIC REVIEWECONOMICS RESEARCHEMPIRICAL EVIDENCEEMPIRICAL FINDINGSEMPIRICAL LITERATUREEMPIRICAL MODELSEMPIRICAL RESEARCHEMPIRICAL RESULTSEMPIRICAL STUDIESEQUATIONSEXCHANGE RATESGDPGDP PER CAPITAGINI COEFFICIENTGINI INDEXGROSS INCOMESHETEROSKEDASTICITYHOUSEHOLD INCOMEHOUSEHOLD SURVEYSIMPACT OF INEQUALITYINCOMEINCOME DISTRIBUTIONINCOME DISTRIBUTIONSINCOME EFFECTINCOME GROUPSINCOME INEQUALITYINCOME MEASURESINCOME SCALEINCOME TAXESINCOME VARIABLESINCOMESINCREASED INEQUALITYINCREASING INCOME INEQUALITYINDIVIDUAL COUNTRIESINDIVIDUAL INCOMESINEQUALITY AVERSIONINEQUALITY AVERSION PARAMETERINEQUALITY DATAINEQUALITY INDEPENDENTINEQUALITY MEASUREINEQUALITY MEASURESINEQUALITY VARIABLESLABOUR MARKETLEARNINGLIFE EXPECTANCYLONGITUDINAL DATAMEAN INCOMEMEDIAN INCOMENATIONAL SURVEYSNEGATIVE IMPACTNEGATIVE SIGNNET EFFECTPAYROLL TAXESPOLICY DISCUSSIONSPOLICY RESEARCHPOORPOOR COUNTRIESPOOR PEOPLEPOSITIVE CORRELATIONPOSITIVE EFFECTPOVERTY LINEPOVERTY REDUCTIONPOWER PARITYPSUPUBLIC ECONOMICSPUBLIC TRANSFERSPURCHASING POWERQUESTIONNAIRESREGIONAL LEVELRELATIVE INCOMERELATIVE POSITIONSAMPLE SIZESIGNIFICANCE LEVELSIGNIFICANT CORRELATIONSIGNIFICANT EFFECTSOCIAL CAPITALSOCIAL INDICATORSSOCIAL JUSTICESOCIAL MOBILITYUNEMPLOYMENTWEALTHWELL-BEINGWorld Bank10.1596/1813-9450-5574