Does Your Neighbor's Income Affect Your Happiness?

The relative income or income status hypothesis implies that people should be happier when they live among the poor. Findings on neighborhood effects suggest, however, that living in a poorer neighborhood reduces, not enhances, a person's happiness. Using data from the American National Election Study linked to income data from the U.S. census, the authors find that Americans tend to be happier when they reside in richer neighborhoods (consistent with neighborhood studies) in poorer counties (as predicted by the relative income hypothesis). Thus it appears that individuals in fact are happier when they live among the poor, as long as the poor do not live too close.