Status effect or tunnel effect Unravelling the dual role of relative income on subjective well-being among the Chinese population

This paper examines subjective well-being in China, with a particular focus on the role of social comparison. Specifically, it examines the impact of relative income on the subjective well-being among the Chinese population from 2005 to 2018, a period characterised by rapid economic growth. By matching data from 10 rounds of the Chinese General Social Survey (CGSS) with the contextual income data from statistical yearbooks, we test the status effect and tunnel effect hypotheses. The analysis confirms the tunnel effect hypothesis: after controlling for individual income, the average income of the reference group has a positive effect on an individual's happiness; in addition, this positive effect substantially decreases and becomes insignificant after incorporating the objective measure of future income expectations. Our analysis provides empirical evidence for the tunnel effect and confirms that economic development can mitigate the negative effects of current inequality by raising people's hopes for future income growth.