Neighbors' Income, Public Goods and Well-Being

Abstract

How does neighbors' income affect individual well-being? Our analysis is based on rich US local data from the Behavioral Risk Factor Surveillance System, which contains information on where respondents live and their self-reported well-being. We find that the effect of neighbors' income on individuals' self-reported well-being varies with the size of the neighborhood included. In smaller areas such as ZIP codes, we find a positive relationship between median income and individuals' life satisfaction, whereas it is the opposite at the county, MSA and state levels. We provide evidence that local public goods and local area characteristics such as unemployment, criminality and poverty rates drive the association between satisfaction and neighbors' income at the ZIP code level. The neighbors' income effects are mainly concentrated among poorer individuals and are as large as one-quarter the effect of own income on self-reported well-being.