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Reversing the Question. Does Happiness Affect Consumption and Savings Behavior?

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Abstract

Better understanding of the relationship between happiness and economic behavior may help design economic policies such as tax and retirement policies, and regulate the timing of macroeconomic announcements. I examine the impact of happiness on consumption and savings behavior. I use data from the DNB Household Survey from the Netherlands and the German Socio-Economic Panel. Instrumenting individual happiness with regional sunshine, the results suggest that happier people save more, spend less, and have a lower marginal propensity to consume. Happier people take more time for making decisions and have more control over expenditures; they expect a longer life and (accordingly) seem more concerned about the future than the present; they also expect less in ation in the future. The results of the paper might also help understand the observed low coefficient on income in any happiness equation that does not instrument income.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_20eco.pdf
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Bibliographic Info

Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2008_20.

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Length: 55 pages
Date of creation: 30 Oct 2008
Date of revision:
Handle: RePEc:dkn:econwp:eco_2008_20

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Keywords: happiness; savings; consumption; climate;

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Cited by:
  1. Beja Jr., Edsel L., 2012. "What do happy people choose: rapid economic growth or stable economy?," MPRA Paper 38851, University Library of Munich, Germany.
  2. Vladimir Otrachshenko & Olga Popova, 2011. "Life (Dis)satisfaction and the Decision to Migrate: Evidence from Central and Eastern Europe," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 306, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  3. Jan-Emmanuel De Neve & Ed Diener & Louis Tay & Cody Xuereb, 2013. "The objective benefits of subjective well-being," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 51669, London School of Economics and Political Science, LSE Library.
  4. Krause, Annabelle, 2012. "Don't Worry, Be Happy? Happiness and Reemployment," IZA Discussion Papers 7107, Institute for the Study of Labor (IZA).
  5. Jan-Emmanuel De Neve & Ed Diener & Louis Tay & Cody Xuereb, 2013. "The Objective Benefits of Subjective Well-Being," CEP Discussion Papers, Centre for Economic Performance, LSE dp1236, Centre for Economic Performance, LSE.
  6. Krause, Annabelle, 2013. "Don’t worry, be happy? Happiness and reemployment," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 96(C), pages 1-20.

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