Relative Income and Subjective Wellbeing: Evidence Using a Two-Stage Estimation Strategy for Spatially Correlated Data

Alexandre Gori Maia, Universidade Estadual de Campinas (UNICAMP)

This paper analyzes the determinants of the self-reported income insufficiency in Brazil, highlighting the important role of regional relative income and educational attainment on subjective measures of wellbeing. Income insufficiency was defined as the self-reported lack of income, partial or total, in order to have a normal life. A two-stage estimation strategy is proposed in order to consider spatial relations in the data and to obtain more efficient estimators of the relation between regional characteristics and reported wellbeing. Results highlight that income insufficiency depends both on family absolute income and on relative regional income. In turn, educational attainment affects both individual perceptions of wellbeing and material aspirations for a normal life. Moreover, differences between rural and urban residents also suggest the effects of adaptive aspirations on subjective evaluations of wellbeing.