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

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Author Info

  • Stevenson, Betsey

    ()
    (University of Michigan)

  • Wolfers, Justin

    ()
    (University of Michigan)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3654.

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Length: 80 pages
Date of creation: Aug 2008
Date of revision:
Publication status: published in: Brookings Papers on Economic Activity, 2008, 1, 1-87
Handle: RePEc:iza:izadps:dp3654

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Related research

Keywords: subjective well-being; Easterlin Paradox; life satisfaction; economic growth; well-being-income gradient; happiness; 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," International Finance, Wiley Blackwell, vol. 6(1), pages 1-26, Spring.
  2. 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.
  3. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  4. Oswald, Andrew J, 2008. "On the Curvature of the Reporting Function from Objective Reality to Subjective Feelings," The Warwick Economics Research Paper Series (TWERPS) 839, University of Warwick, Department of Economics.
  5. 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.
  6. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gallup_world_poll_jep_spring2008 is not listed on IDEAS
  7. 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.
  8. Campbell, John Y. & Mankiw, N. Gregory, 1990. "Permanent Income, Current Income, and Consumption," Scholarly Articles 3353762, Harvard University Department of Economics.
  9. 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).
  10. 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.
  11. Betsey Stevenson & Justin Wolfers, 2009. "The Paradox of Declining Female Happiness," NBER Working Papers 14969, National Bureau of Economic Research, Inc.
  12. 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.
  13. 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.
  14. 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.
  15. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  16. 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.
  17. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  18. Kenny, Charles, 1999. "Does Growth Cause Happiness, or Does Happiness Cause Growth?," Kyklos, Wiley Blackwell, vol. 52(1), pages 3-25.
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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. Happiness, democracy & health
    by chris dillow in Stumbling and Mumbling on 2009-06-03 13:41:49
  3. Income makes happy after all
    by Economic Logician in Economic Logic on 2009-01-22 15:06:00
  4. Life satisfaction, GDP and sense
    by Diane Coyle in The Enlightened Economist on 2014-01-12 10:39:44
  5. Undergraduate Economics Journal Club
    by Liam Delaney in Geary Behaviour Centre on 2010-09-10 14:31:00
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