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Happiness Adaptation to Income beyond "Basic Needs"

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  • Rafael Di Tella
  • Robert MacCulloch

Abstract

We test for whether, once "basic needs" are satisfied, there is happiness adaptation to further gains in income using three data sets. Individual German Panel Data from 1985-2000, and data on the well-being of over 600,000 people in a panel of European countries from 1975-2002, shows different patterns of adaptation to income across the rich and poor. We find evidence that for wealthy Germans, and for the rich half of European nations, higher levels of per capita income don't buy greater happiness. The reason appears to be adaptation. However even for the rich half of European nations such habituation may take over 5 years so the happiness gains that they experience, whilst not permanent, can still be relatively long-lasting. Finally we study a cross section of nations in 2005 from the World Gallup Poll and find that the past 45 years of economic growth (from 1960-2005) in the rich half of nations has not brought happiness gains above those that were already in place once the 1960s standard of living had been achieved. However in the poorest half of nations we cannot reject the null hypothesis that the happiness gains they have experienced from the past 45 years of growth have been the same as the gains that they experienced from growth prior to the 1960s.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14539.

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Date of creation: Dec 2008
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Publication status: published as Di Tella, Rafael, and Robert MacCulloch. "Happiness Adaptation to Income beyond 'Basic Needs'." Chap. 8 in International Differences in Well-Being, edited by Ed Diener, John Helliwell, and Daniel Kahneman, 217–247. New York: Oxford University Press, 2010.
Handle: RePEc:nbr:nberwo:14539

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Cited by:
  1. Duha T. Altindag & Junyue Xu, 2011. "The Impact of Institutions and Development on Happiness," Auburn Economics Working Paper Series auwp2011-08, Department of Economics, Auburn University.
  2. Betsey Stevenson & Justin Wolfers, 2013. "Subjective Well-Being and Income: Is There Any Evidence of Satiation?," American Economic Review, American Economic Association, vol. 103(3), pages 598-604, May.
  3. Martin Binder & Felix Ward, 2011. "The Structure of Happiness: A Vector Autoregressive Approach," Papers on Economics and Evolution 2011-08, Max Planck Institute of Economics, Evolutionary Economics Group.
  4. Pedersen, Peder J. & Schmidt, Torben Dall, 2009. "Happiness in Europe: Cross-Country Differences in the Determinants of Subjective Well-Being," IZA Discussion Papers 4538, Institute for the Study of Labor (IZA).
  5. Andos Juhász, 2012. "A Satisfaction-Driven Poverty Indicator: A Bustle around the Poverty Line," SOEPpapers on Multidisciplinary Panel Data Research 461, DIW Berlin, The German Socio-Economic Panel (SOEP).

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