Relative deprivation and economic aspiration : evidence on aspiration failure for a developing country

Abstract

This paper contributes new evidence on the role of relative deprivation and Locus of control (LOC) in income aspiration formation, empirically exploring the validity of the assumptions used by Genicot and Ray (2014) to model aspiration and assessing the presence of aspiration failures in a developing country. Aspiration failures suggest that individuals may reduce their economic aspirations due relative deprivation and the perception that their destiny is beyond their control. This hypothesis is explored using both indirect and direct measures of economic aspirations and considering alternative measures of relative income. We focus on the role of LOC, which provides information about how individuals perceive the causal connection between their actions and experienced outcomes. Estimates are based on a panel survey from Uruguay. The results confirm the relevance of LOC in explaining economic aspiration, but its incidence varies with the domain. While higher internality and relative power lead to higher economic aspiration, fatalistic belief leads to lower aspiration. Furthermore, they confirm the role of relative income in the levels of economic aspiration, but the responses would be asymmetric. This result suggests that relative income is relevant only for individuals with positive relative income, but the incentive effect of reference groups disappears when individuals face relative deprivation. Finally, they show that, among fatalistic individuals, higher relative deprivation reduces economic aspiration