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

Author

Listed:
  • 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)

  • Peter Hans Matthews

    (Middlebury College, Aalto School of Business, and Helsinki GSE)

  • Topi Miettinen

    (Hanken School of Economics, and Helsinki GSE)

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.

Suggested Citation

  • Xiaogeng Xu & Satu Metsälampi & Michael Kirchler & Kaisa Kotakorpi & Peter Hans Matthews & Topi Miettinen, 2023. "Which income comparisons matter to people, and how? Evidence from a large field experiment," Working Papers 10, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:10
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    References listed on IDEAS

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    More about this item

    Keywords

    Relative position; individual welfare; fairness; comparison group; information provision;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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