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A Dynamic Model of the Relationship Between Income and Financial Satisfaction: Evidence from Ireland

Author

Listed:
  • Carol Newman

    (Trinity College Dublin)

  • Liam Delaney

    (University College Dublin)

  • Brian Nolan

    (University College Dublin)

Abstract

The link between income and subjective satisfaction with one’s financial situation is explored in this paper using a panel analysis of 1,998 individuals tracked through the course of the boom period in Ireland, 1994-2001. A dynamic ordered probit model which incorporates state dependence and controls for correlated individual effects and the initial conditions problem is applied. The impact of the level of household income, the time-path of income and deviations of individual income from reference group income and household income are all considered. To the extent that income influences financial satisfaction, there is strong evidence from this paper that the level of household income has the most important effect but this effect is lessened once persistence in the data is controlled for and is diminishing at higher income levels. Controlling for income and socio-economic characteristics, the positive deviations of household income from reference group income are found to have a positive effect on financial satisfaction as are positive deviations of individual income from household income.

Suggested Citation

  • Carol Newman & Liam Delaney & Brian Nolan, 2008. "A Dynamic Model of the Relationship Between Income and Financial Satisfaction: Evidence from Ireland," The Economic and Social Review, Economic and Social Studies, vol. 39(2), pages 105-130.
    • Handle: RePEc:eso:journl:v:39:y:2008:i:2:p:105-130
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    File URL: http://www.esr.ie/Vol39_2/02-Newman.pdf
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Links and Notes from April 17th Whitaker Institute Talk on Well-Being
      by Liam Delaney in Economics and Psychology Research on 2013-05-04 00:32:00

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    Cited by:

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    2. Junji Kageyama & Tsukasa Matsuura, 2018. "The Financial Burden of Having Children and Fertility Differentials Across Development and Life Stages: Evidence from Satisfaction Data," Journal of Happiness Studies, Springer, vol. 19(1), pages 1-26, January.
    3. Edsel Beja, 2014. "Income growth and happiness: reassessment of the Easterlin Paradox," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(4), pages 329-346, December.
    4. Waqas Ali & Rehman Javaid & Shujahat Ali3 & Yasir Akram & Ayaz Ul Haq, 2019. "Infl Uence Of Life Events On The Financial Satisfaction Of Individuals," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 15(1), pages 123-137.
    5. Mduduzi Biyase & Cephas Naanwaab, 2021. "Rural–Urban Differences in Subjective Well-Being for South Africa: Static and Dynamic Approaches," Economic Development and Well-being Research Group Working Paper Series edwrg-03-2021, University of Johannesburg, College of Business and Economics, revised 2021.
    6. Kim, Bokyung & Jeong, Jinook, 2017. "Dynamics of adolescents’ life satisfaction and effect of class rank percentile: Evidence from Korean panel data," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 8-28.
    7. Wunder, Christoph, 2012. "Does subjective well-being dynamically adjust to circumstances?," Economics Letters, Elsevier, vol. 117(3), pages 750-752.
    8. Borooah, Vani & Dineen, Donal & Lynch, Nicola, 2010. "Health, Employment and the Quality of Life in Ireland," MPRA Paper 75682, University Library of Munich, Germany.
    9. Shalini Kalra Sahi, 2013. "Demographic and socio‐economic determinants of financial satisfaction," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 40(2), pages 127-150, January.
    10. Orcun Kaya, 2014. "Is perceived financial inadequacy persistent?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 636-654, December.
    11. FUSCO Alessio, 2013. "The dynamics of perceived financial difficulties," LISER Working Paper Series 2013-24, Luxembourg Institute of Socio-Economic Research (LISER).
    12. Gagandeep Kaur & Manjit Singh & Sanjay Gupta, 2023. "Analysis of key factors influencing individual financial well-being using ISM and MICMAC approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(2), pages 1533-1559, April.
    13. Biyase, Mduduzi & Naanwaab , Cephas, 2023. "Rural–Urban Differences in Subjective Well-Being for South Africa: Static and Dynamic Approaches," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 48(1), pages 1-30, March.
    14. Ngamaba, Kayonda Hubert & Armitage, Christopher & Panagioti, Maria & Hodkinson, Alexander, 2020. "How closely related are financial satisfaction and subjective well-being? Systematic review and meta-analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 85(C).

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