Inequality and Subjective Well-Being

Diminishing marginal well-being from income suggests that redistributing income from the rich to the poor will raise average levels of well-being within a society. This utilitarian logic suggests that— conditional on average income—countries with greater income inequality will experience lower levels of average well-being. Yet existing research has failed to find clear evidence that inequality undermines average levels of subjective well-being, and many have concluded that therefore no such relationship exists. We develop a model that quantifies the utilitarian hypothesis quite precisely and find that existing data cannot reject the utilitarian intuition that economic inequality undermines average levels of wellbeing. However, equally, we are unable to reject the hypothesis that the inequality does not impact wellbeing. In short, we show that there is so little variation in economic inequality around the world that existing results reflect imprecise estimates, rather than important insight into the link between inequality and well-being.