Verme, Paolo2013-09-252013-09-252013-09https://hdl.handle.net/10986/15825The paper provides a review of the empirical literature in economics that has attempted to test the relative income hypothesis as put forward by Duesemberry (1949) and the relative deprivation hypothesis as formalized by Runciman (1966). It is argued that these two hypotheses and the empirical models used to test them are essentially similar and make use of the same relative income concept. The review covers the main intellectual contributions that led to the formulation and tests of these hypotheses, the main formulations of the utility and econometric equations used in empirical studies, the main econometric issues that complicate tests of the hypotheses, and the empirical results found in the literature. The majority of studies uses absolute and relative income together as explanatory factors in utility models and finds absolute income to have a positive and significant effect on utility (happiness). The majority of studies also finds relative income to be a significant factor in explaining utility but the sign of this relation varies across studies. The source of this variation is complex to detect given that few results are directly comparable across studies because of differences in model specifications.en-USCC BY 3.0 IGOAVERAGE INCOMESCONSUMERSCONSUMPTION FUNCTIONCROSS-COUNTRY STUDIESCROSS-SECTION DATADATA SETSDECISION MAKINGDEPENDENT VARIABLEDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIMINISHING RETURNSDISTRIBUTIONAL CHANGEECONOMETRIC ANALYSISECONOMETRIC ISSUESECONOMETRIC MODELECONOMETRIC MODELSECONOMETRIC PROBLEMSECONOMETRICSECONOMIC GROWTHECONOMIC INEQUALITYECONOMIC RESEARCHECONOMIC REVIEWECONOMIC SYSTEMSECONOMIC THEORYELASTICITYEMPIRICAL ANALYSISEMPIRICAL EVIDENCEEMPIRICAL LITERATUREEMPIRICAL MODELEMPIRICAL MODELSEMPIRICAL RESEARCHEMPIRICAL RESULTSEMPIRICAL STUDIESEMPIRICAL WORKSEMPLOYMENT STATUSEQUATIONSEXOGENOUS SHOCKSEXPLANATORY FACTORSEXPLANATORY POWEREXPLANATORY VARIABLEEXPLANATORY VARIABLESGDPGDP PER CAPITAGINI COEFFICIENTGINI INDEXGROUP INEQUALITIESHOUSEHOLD INCOMEINCOME DISTRIBUTIONINCOME EFFECTINCOME EQUATIONINCOME INEQUALITYINCOME LEVELSINCOME SCALEINCOME SOURCEINCOME VARIABLESINCOMESINCREASING FUNCTIONINDIVIDUAL INCOMESINEQUALITYKEYNESIAN ECONOMICSLABOR MARKETLABOR SUPPLYLABOURLIFE EXPECTANCYLONGITUDINAL DATALOTTERYLOW INCOMEMACROECONOMICSMARGINAL UTILITYMARKET ECONOMIESMEAN INCOMEMEAN INCOMESNATIONAL INCOMENEGATIVE SIGNPERMANENT INCOMEPERMANENT INCOME HYPOTHESISPOLICY DISCUSSIONSPOLICY RESEARCHPOLITICAL ECONOMYPOLITICAL SCIENCEPOORPOSITIVE COEFFICIENTPOVERTY REDUCTIONPUBLIC ECONOMICSPUBLIC GOODSPUBLIC POLICYRELATIVE EARNINGSRELATIVE INCOMERELATIVE INCOME DISTRIBUTIONRELATIVE INCOMESRURALRURAL AREASSAVINGSSIGNIFICANT DIFFERENCESSIGNIFICANT EFFECTSOCIAL CAPITALTAXATIONTRANSITION ECONOMIESUNEMPLOYEDUNEMPLOYMENTUTILITY FUNCTIONUTILITY FUNCTIONSUTILITY MAXIMIZATIONWAGE INCREASESWAGESWARWEALTHWELL-BEINGWELLBEINGWorld Bank10.1596/1813-9450-6606