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Subjective Economic Well-being in Transition Countries: Investigating the Relative Importance of Macroeconomic Variables

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  • Lena Malesevic Perovic

    (Faculty of Economics, Split, Croatia)

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    Abstract

    In this paper we combine the data from surveys about life-satisfaction and macroeconomic data and analyse the (order of) importance of macroeconomic variables for one’s subjective economic well-being. This approach allows an analysis from a subjective view – that of the public, in contrast to the usually used objective view, whereby policy goals are assumed to reflect public opinion. We find that the key macroeconomic variables of inflation, unemployment and GDP (growth) matter for the public’s sense of economic well-being in transition countries. Moreover, improvements in national income lead to both temporary and permanent gains in subjective economic well-being in transition countries. Habituation effects are present, indicating that individuals become accustomed to an increase in national income, but not all the benefits of this increase dissipate over time. Furthermore, GDP growth and unemployment are found to be more important than inflation in transition countries. This suggests that achieving GDP growth is an important goal of economic policy not only from the point of view of policy-makers but also from that of the public, and that it should be pursued. On the other hand, given that unemployment is more important than inflation for the public’s economic well-being, policy-makers in transition countries might need to revise their exclusive focus on inflation. This is to say that more effort should be put into decreasing unemployment (which might have an adverse effect on inflation) rather than into restraining inflation.

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    Bibliographic Info

    Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

    Volume (Year): 32 (2008)
    Issue (Month): 4 ()
    Pages: 519-537

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    Handle: RePEc:ipf:finteo:v:32:y:2008:i:4:p:519-537

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    Related research

    Keywords: subjective economic well-being; surveys; transition countries; Croatia; macroeconomic variables;

    References

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    1. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 1999. "The macroeconomics of happiness," ZEI Working Papers B 03-1999, ZEI - Center for European Integration Studies, University of Bonn.
    2. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 13-70 National Bureau of Economic Research, Inc.
    3. Bernd Hayo & Wolfgang Seifert, 2002. "Subjective Economic Well-Being in Eastern Europe," Development and Comp Systems 0203001, EconWPA.
    4. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
    5. Paul, Satya, 2001. "A Welfare Loss Measure of Unemployment with an Empirical Illustration," Manchester School, University of Manchester, vol. 69(2), pages 148-63, March.
    6. Green, Francis & Felstead, Alan & Burchell, Brendan, 2000. " Job Insecurity and the Difficulty of Regaining Employment: An Empirical Study of Unemployment Expectations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(0), pages 855-83, Special I.
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