Inequality and well-being in transition economies: A non-experimental test of inequality aversion

Alexandru Cojocaru

No 238, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: This paper examines the link between inequality and individual well-being using household survey data from 27 Transition Economies, where income inequality increased considerably since 1989. A test of inequality aversion in individual preferences that draws on the Fehr and Schmidt (QJE, 1999) specification of inequality aversion is proposed, and the difficulties of implementing it in a non-experimental setting are discussed. Estimates based on this model confirm aversion to inequality both in the overall sample and in the regional sub-samples. The Gini index, on the other hand, is unable to capture this negative effect of inequality on well-being. Notably, inequality aversion is not intrinsic. Rather, it appears to be tied to a concern with the fairness of the institutions underlying the distribution of fortunes in society. The evidence is suggestive of inequality of opportunity driving attitudes toward overall inequality. Perceiving inequality to be unfair is also associated with calls for strong government involvement in redistributive policies.

Keywords: inequality aversion; relative deprivation; subjective well-being; transition economies. (search for similar items in EconPapers)
JEL-codes: D63 I32 P20 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2011
New Economics Papers: this item is included in nep-cwa, nep-hap, nep-ltv, nep-tra and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2011-238

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