Does inequality enhance life satisfaction? - A longitudinal investigation

The relationship between inequality and subjective well-being (e.g. life satisfaction) has received sustained research attention in recent years – in part, perhaps, because a consensus has proved elusive. Most investigations in this area are cross-sectional: researchers generally perceive a constraint to longitudinal analysis, rooted in the view that it is necessary to include controls for individual-level determinants of SWB. I argue here that individual-level controls are not needed for this question – and we can then construct a longitudinal analysis by taking country-level averages of life satisfaction from repeated cross-sectional data and regressing them (using a ‘within’ specification) on repeated Gini measures. We then see, in contrast to some influential previous findings, that inequality does not have any substantial positive impact on life satisfaction. In wealthy countries increased inequality has a substantial negative impact on life satisfaction, while in poorer countries any effect (positive or negative) is small. The longitudinal analysis presented here is less prone to bias from omission of confounders; there is then reason to believe that the findings presented in previous (cross-sectional) research are biased upwards via failure to control for unobserved confounders.