Absolute versus Relative Income and Their Effect on Depression and Chronic Anxiety

We use a large survey on health conditions conducted in Israel to explore whether absolute and/or relative income has a moderating effect on depression and/or chronic anxiety. In contributing to the literature, we use diagnosis-based depression and/or anxiety instead of non-diagnosis terms, such as happiness or well-being. Under this framework, we found that all of the moderating effect of income should be attributed to relative income and especially to socioeconomic relative income. Thus, stressing social comparison, as opposed to inner comparison or habituation. These moderating effects, which are mostly found in middle-aged adults (ages 30 to 65), are robust to alternative specifications of different sampling of health conditions, numerous control variables and several subsamples divided by gender, age and religion. The results have important health policy implications regarding possible treatments.