The Effects of Relative Income and Absolute Income on Happiness

Abstract

Abstract The authors consider the absolute income effect and several relative income effects on happiness. The latter include both a longitudinal comparison, which consists of both upward and downward comparisons, and a parallel comparison with individuals of similar traits. It is found that the longitudinal comparison and parallel comparison exist simultaneously, although the downward comparison is insignificant. However, the symmetry of the upward comparison, downward comparison, and parallel comparison cannot be rejected. Because the absolute income effect and the relative income effects countervail, the effect of income growth on subjective well‐being is likely to be negligible.