Does Income (Re)distribution Matter for Subjective Well-being? Evidence from Cross-country Panel Data

Abstract

Objectives This study empirically investigates the effects of income inequality and income redistribution policy on country-level subjective well-being. Methods The paper uses panel data of 134 countries from 2005 to 2017. The fixed effect model with time and country dummies is employed. Results We find that a higher inequality level significantly deteriorates happiness in a country with high income inequality, while it does not affect happiness in a country with a low level of inequality. In addition, stronger redistributive policies improve subjective well-being of countries that have high income inequality, while the policies do not have significant effect on subjective well-being in countries with relatively low-income inequality. Furthermore, this paper finds that people are affected by relative levels of income inequality as income grows: people in developed countries may have higher standard for income equality compared with those in developing countries. Conclusions The policy implication of this paper is that an active income redistribution policy can improve the country level subjective well-being if a country's income inequality level is higher than its peer group, regardless of whether it is a developed or developing country.