Income Inequality, Government Welfare Effort, and Subjective Well-Being: Three Essays

Abstract

This dissertation consists of three essays on the relations of income inequality and government welfare effort with subjective well-being. The first essay introduces the concepts, reviews the literature linking income inequality and government welfare effort to subjective well-being, and identifies the research gaps. The paper concludes that the relationship between income inequality and subjective well-being is determined by how inequality is defined and what it signals. Similarly, the relationship between government welfare effort and subjective well-being is determined by factors such as ideology, quality of governance, and the magnitude of social assistance “stigma” effects.

The second essay examines whether the relationship between life satisfaction and income inequality or government welfare effort differs by country income group, that is, low-income, lower middle-income, upper middle-income, and high-income countries. It further provides

insight into the role of governance in mediating the relationship between inequality and life satisfaction. The essay concludes that the relationship between inequality and life satisfaction is similar (significant and negative) across all country income groups when inequality is perceived as or signals inherent unfairness. Similarly, the association between government welfare effort and life satisfaction is similar (significant and positive) across all country income groups when the government is perceived to be doing enough for the poor. Finally, it appears that confidence in national institutions and leaders may reduce the adverse effects of inequality.

The final essay examines whether social protection spending is predictive of life satisfaction in Iraq, a conflict-affected and resource-rich developing country. The main finding is that there is a negative association between life satisfaction and the receipt of most types of public transfers. This negative association is mitigated and, in some cases, becomes positive for individuals in the lowest income quintiles. These patterns are also observed for families considered to be vulnerable based on region of residence and the gender of the household head. A noteworthy finding is that income assistance from private sources is also associated negatively with life satisfaction while income from property ownership and assets is associated positively with life satisfaction. This supports the idea that the source of income matters to individuals, even in the context of a conflict-affected resource-rich developing country like Iraq. This research aims to contribute to the current base of knowledge and to policy questions of interest to academia, research institutions, developing country governments, donors, and the public at large. The findings shed light on how socio-economic contexts are predictive of life satisfaction as well as on how social policies can be designed or modified to improve welfare in developing countries.