Income Inequality and Wellbeing: The Plight of the Poor and the Curse of Permanent Inequality

Abstract

This paper examines the effect of income inequality on individual wellbeing. The results show that those in the lowest twenty percent of income distribution have a marked reduction in wellbeing compared to the remainder. Hence, poverty is detrimental to wellbeing. The second key finding of this paper is that the existence of permanent aggregate income inequality reduces the wellbeing of individuals in other parts of income distribution, irrespective of their level of income. Income inequality is bad for everyone's wellbeing.