Income Inequality and the Implications of the Easterlin Paradox

Maximizing the satisfaction of individuals and the welfare of society has always been one of the goals of human societies. Happiness is one of the criteria for identifying the level of satisfaction of people in society. Various factors, such as economic and social conditions, can affect people's happiness. Among these, inequality in income distribution and the feeling of deprivation play an important role in determining people's sense of satisfaction and happiness. Also, the type of perception and judgment of individuals about their economic and social conditions in society and their predictions about each other and the society in which they live plays an important role in the tolerable threshold of inequality. The purpose of this study is to investigate the effect of income inequality thresholds on happiness in the context of the Easterlin paradox. For this purpose, data from 32 developing countries during the years 2005-2016 have been used. The results of estimating the threshold dynamic panel model show that in the low inequality regime,  when the Gini coefficient is less than 0.358, the increase in per capita income has a significant positive effect on happiness in developing countries. But in the high inequality regime, when the Gini coefficient is greater than 0.358, the increase in per capita income has not had a significant effect on happiness. Therefore, the results confirm the Easterlin paradox and indicate the existence of the Easterlin paradox is because of the high income inequality.