Abstract
This paper examines the importance of relative deprivation in Tanzania, a poor African country, using three waves of the Tanzanian National Panel Survey. We contribute to earlier literature in Africa by controlling for time persistent unobservable individual characteristics (panel data) and by using two measures of satisfaction (life and financial satisfaction) and two definitions of reference group. By comparing results between satisfaction measures and across definitions of reference groups we help to understand the mechanisms through which comparisons work in a poor setting. In contrast with earlier literature, we find strong evidence of relative deprivation in financial satisfaction of all individuals in Tanzania, and evidence for life satisfaction only for individuals with weaker ties with their community. For those with strong ties (47% of our total sample; 54% of the rural sample), we find evidence of a positive correlation between life satisfaction and the average consumption of close neighbors and argue that this can be explained by feelings of empathy. In the paper we present several tests. We argue in favor of taking comparisons to others seriously when assessing and introducing welfare policies, also in less developed countries.