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Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox

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  • Betsey Stevenson
  • Justin Wolfers

Abstract

The “Easterlin paradox” suggests that there is no link between a society’s economic development and its average level of happiness. We re-assess this paradox analyzing multiple rich datasets spanning many decades. Using recent data on a broader array of countries, we establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is consistent across many datasets and is similar to the relationship between subject well-being and income observed within countries. Finally, examining the relationship between changes in subjective well-being and income over time within countries we find economic growth associated with rising happiness. Together these findings indicate a clear role for absolute income and a more limited role for relative income comparisons in determining happiness.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2394.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2394

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Related research

Keywords: happiness; subjective well-being; Easterlin Paradox; life satisfaction; economic growth; well-being-income gradient; hedonic treadmill;

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References

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  1. Wolfers, Justin, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-Being," Research Papers 1751r, Stanford University, Graduate School of Business.
  2. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  3. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 53-72, Spring.
  4. Betsey Stevenson & Justin Wolfers, 2009. "The paradox of declining female happiness," Working Paper Series 2009-11, Federal Reserve Bank of San Francisco.
  5. Oswald, Andrew J., 2008. "On the Curvature of the Reporting Function from Objective Reality to Subjective Feelings," IZA Discussion Papers 3344, Institute for the Study of Labor (IZA).
  6. Kenny, Charles, 1999. "Does Growth Cause Happiness, or Does Happiness Cause Growth?," Kyklos, Wiley Blackwell, vol. 52(1), pages 3-25.
  7. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  8. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  9. Andrew Leigh & Justin Wolfers, 2006. "Happiness and the Human Development Index: Australia is Not a Paradox," NBER Working Papers 11925, National Bureau of Economic Research, Inc.
  10. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  11. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  12. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
  13. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
  14. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  15. 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.
  16. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
  17. Michael Eid & Ed Diener, 2004. "Global Judgments of Subjective Well-Being: Situational Variability and Long-Term Stability," Social Indicators Research, Springer, vol. 65(3), pages 245-277, February.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Kan indkomst købe lykke?
    by ? in Carl-Johan Dalgaard on 2013-02-06 01:31:29
  2. Undergraduate Economics Journal Club
    by Liam Delaney in Geary Behaviour Centre on 2010-09-10 14:31:00
  3. Happiness, democracy & health
    by chris dillow in Stumbling and Mumbling on 2009-06-03 13:41:49
  4. Income makes happy after all
    by Economic Logician in Economic Logic on 2009-01-22 15:06:00
  5. Life satisfaction, GDP and sense
    by Diane Coyle in The Enlightened Economist on 2014-01-12 10:39:44
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