The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment
In 2001, Norwegian tax records became easily accessible online, allowing everyone in the country to observe the incomes of everyone else. According to the income comparisons model, this change in transparency can widen the gap in well-being between richer and poorer individuals. We test this hypothesis using survey data from 1985–2013. Using multiple identification strategies, we show that the higher transparency increased the gap in happiness between richer and poorer individuals by 29%, and it increased the life satisfaction gap by 21%. We provide suggestive evidence that some, although probably not all, of this effect relates to changes in self-perceptions of relative income. We provide back-of-the-envelope estimates of the importance of income comparisons, and discuss implications for the ongoing debate on transparency policies.
Thanks to Ipsos MMI for providing access to the survey data. Thanks to Ottar Hellevik for all his help with this study. Thanks to Erzo F.P. Luttmer and Johanna Mollerstrom for providing excellent discussions. Thanks to the editor and reviewers for their invaluable input. I also benefited from the feedback from several colleagues as well as seminar discussants at Harvard, Princeton, Yale, Universidad de San Andres, LMU Munich, ITAM, CIDE, Universidad Catolica de Chile, Universidad de la Republica, RAND, the BESH Research Symposium, the AEA Annual Meetings, the USC Happiness Conference and the NBER Summer Institute. Diego Marino Fages provided outstanding research assistance. The first draft of this paper circulated in August 2015 under the title “Measuring the Value of Self- and Social-Image.” The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Ricardo Perez-Truglia, 2020. "The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment," American Economic Review, vol 110(4), pages 1019-1054. citation courtesy of