Which income comparisons matter to people, and how? Evidence from a large field experiment

Xiaogeng Xu (), Satu Metsälampi (), Michael Kirchler (), Kaisa Kotakorpi (), Peter Matthews and Topi Miettinen
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Xiaogeng Xu: Hanken School of Economics, and Helsinki GSE
Satu Metsälampi: University of Turku
Michael Kirchler: University of Innsbruck
Kaisa Kotakorpi: Tampere University, Finnish Centre of Excellence in Tax Systems Research

No 10, Working Papers from Finnish Centre of Excellence in Tax Systems Research

Abstract: Received wisdom holds that income rank matters for life satisfaction. In much of the literature, however, income comparisons are limited to the national pop- ulation and evidence is correlational. In this paper, we investigate differences in the causal effects of rank information across reference groups. In a represen- tative sample of mid-career Finns, we randomize individuals to receive personal rank information about educational, municipal, occupational, or age reference groups, and compare the effects, for a set of alternative welfare measures, to the standard national reference group and to a control group that receives no information. We also characterize the accuracy of rank beliefs across groups. Our data, which integrates experimental and register data, finds that rank in- formation causes differences in satisfaction with disposable income, perceived fairness of own income, and wage satisfaction, but not life satisfaction. We also find substantial variation in the effects across reference groups, with those for the national reference group both weak and insignificant.

Keywords: Relative position; individual welfare; fairness; comparison group; information provision (search for similar items in EconPapers)
JEL-codes: D63 D8 D91 I31 (search for similar items in EconPapers)
Pages: 138 pages
Date: 2023-05
New Economics Papers: this item is included in nep-eur, nep-exp, nep-hap and nep-mfd
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Citations: View citations in EconPapers (1)

Published in FIT Working Paper Series, Finnish Center of Excellence in Tax Systems Research

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