The positive causal association between absolute income and health is robust across the empirical evidence. However, the impact of income inequality on health is not consistent. The conclusions from empirical studies are largely dependent on the region or country studied and the methodology employed. Using the Household, Income and Labour Dynamics in Australia survey for 2001-2008, this thesis offers a unique contribution by investigating the relationship in Australia for the first time. The research extends on the existing literature by addressing a wide range of considerations in the methodology and econometric techniques. The Gini coefficient, Theil, and Atkinson indices of income inequality are calculated at the neighbourhood level to test the Income Inequality Hypothesis. The Relative Deprivation Hypothesis is also tested using the Yitzhaki index for individual deprivation. These measures are analysed for their associations with subjective health outcomes of physical functioning, mental health, general health and chronic disease.
Linear panel data methods are employed to accommodate for individual heterogeneity and non-linear models are employed for the ordered and binary health outcomes. The enquiry finds mental health to be adversely affected by the presence of relative deprivation, with some support also for the Income Inequality Hypothesis. There is no evidence that the other measures of health are affected by inequality. Potential bias in the estimates from the endogeneity of income is addressed through sensitivity analysis. Furthermore, occupations are explored as an alternative reference group, contributing to the understanding of the impact of social comparisons on individual health outcomes.
Preceding the empirical investigation is a multi-disciplinary enquiry into the theories that identify the potential transmission mechanisms from inequality to health and its policy implications.