Studies of the relative income hypothesis find positive and negative effects of relative income. To facilitate comparisons we use a large household panel and highlight the sensitivity of the relative income effect to the definition of the reference group and to the estimation strategy employed.

Empirical studies of the relative income hypothesis have found both positive and negative effects of relative income on utility. Differences in data and methods make the results difficult to compare. To facilitate comparisons we explore the problem using a large UK household panel. Our findings...