One neighbor’s income is another neighbor’s envy: exploring subjective living standards in Paraguay

In this study the determinants of subjective living standards in Paraguay are analyzed. In particular, the impact of being rich and having an income lower than neighbors on subjective living standards is explored. Using data from the Survey of Income and Expenditure 2011-2012, the results indicate that, after controlling for a number of demographic, geographic, and socioeconomic characteristics, being rich is positively associated with higher self-reported living standards, but this effect is almost completely negated by the negative effect of having an income below the average income of neighbors. This implies that, on average, being rich makes people happy only if they are richer than their neighbors. The effect of access to basic goods and services on living standards is also explored. The results suggest that policy makers should be cautious in developing public policies based on self-reported living standards, because people appear to form their perceptions of wealth based on having more than those around them. Thus, as the saying goes, “You can’t make everyone happy.”