Latin America is known as the most unequal region in the world. However, the effect of income inequality on people’s welfare is still an open question. This paper assesses the relationship between income distribution and welfare by considering the levels of happiness reported by people. The main contribution of this paper is the examination of not only the direct effect of economic performance on happiness, but also the indirect macroeconomic effects through the subjective income scale. Our database comes from the 2008 Latino-barometer survey and we estimate probit models. Findings indicate that while poverty, income per capita and the human development index have only a significant direct impact on individual happiness, income distribution play an indirect role. In particular, we find that even when it plays non significant role, it matters through the subjective income level. The results show that richer people tend to be happier, however, the interaction term between the self-placement in the income scale and inequality is negatively related to happiness. Hence, individuals with higher income levels will be happier in countries where inequality is lower.