Economic Growth, Income Inequality and Subjective Well-Being: Evidence from China

Xiaogang Wu, Hong Kong University of Science and Technology
Joanne Ip, Hong Kong University of Science and Technology
Jun Li, Hong Kong University of Science and Technology

This paper examines the subjective consequence of income inequality in China, based on the data from a national representative survey in China and prefecture-level statistics in 2005. We employ multi-level models to show that, at the individual level, life satisfaction is mainly affected by social comparisons via subjective evaluations of one’s own status against the peers and the past, rather than absolute personal income. At the aggregate level, overall, economic development level has no significant effect on individuals’ subjective wellbeing; however, the interaction between personal income and local GDP per capita shows a significantly negative effect. Moreover, the rate of local economic growth positively affects their life satisfaction, whereas the income inequality, measured by Gini coefficients, yields negative impact on individuals’ subjective wellbeing. Our findings help to clarify mixed results from the previous studies on the association between income inequality and life satisfaction.