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Easterlin-types and Frustrated Achievers: the Heterogeneous E¤ects of Income Changes on Life Satisfaction

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Abstract

We investigate the relationship between money and happiness across the waves of the British Household Panel Study by using a latent class approach which accounts for slope heterogeneity, omitted variable bias and departures from normality assumptions. Our findings reveal the presence of a vast majority of "Easterlin-type" individuals with positive but very weak relationship between changes in income and changes in happiness and a small minority (2 percent) of "frustrated achievers" with negative relationship. Such share is much below descriptive evidence on frustrated achievement (17.5 percent). The probability of belonging to such group is shown to be positively related with divorced status and negatively related to education and relative (personal to reference group) income. Our interpretation of these results is that the standard concave money-happiness relationship provides a partial and incomplete picture of the complex nexus between happiness and income as it does not take into account two important phenomena: the role of peers and of reference group income and that of the dynamics between realisations and expectations.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 127.

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Length: 27 pages
Date of creation: 09 Sep 2008
Date of revision: 09 Sep 2008
Handle: RePEc:rtv:ceisrp:127

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Phone: +390672595601
Fax: +39062020687
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Web page: http://www.ceistorvergata.it
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: income-life satisfaction relationship; heterogeneous effects; frustrated achievement; mixture models;

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  1. Paul Frijters & Ingo Geishecker & John P. Haisken-DeNew & Michael A. Shields, 2006. "Can the Large Swings in Russian Life Satisfaction be Explained by Ups and Downs in Real Incomes?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(3), pages 433-458, October.
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  23. repec:rtv:ceisrp:51 is not listed on IDEAS
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Cited by:
  1. Distante, Roberta, 2010. "Subjective well-being, income and relative concerns in the UK," MPRA Paper 30786, University Library of Munich, Germany.

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