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Estimating the Causal Effects of Income on Happiness

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  • Nattavudh Powdthavee

Abstract

There is a long tradition of psychologists finding small income effects on life satisfaction (or happiness). Yet the issue of income endogeneity in life satisfaction equations has rarely been addressed. This paper aims to do just that. Instrumenting for income and allowing for unobserved heterogeneity result in an estimated income effect that is almost twice as large as the estimate in the basic specification. The results call for a reexamination on previous findings that suggest money buys little happiness, and a reevaluation on how the calculation of compensatory packages to various shocks in the individual's life events should be designed.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 09/02.

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Date of creation: Jan 2009
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Handle: RePEc:yor:yorken:09/02

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Money, reputation and happiness
    by chris dillow in Stumbling and Mumbling on 2009-03-05 17:27:55
  2. Living wage trade-offs
    by chris dillow in Stumbling and Mumbling on 2013-02-03 11:57:55
  3. Guaranteed Income and Living Wages
    by Eric Crampton in Offsetting Behaviour on 2013-02-03 21:58:00
  4. Tories & the minimum wage
    by ? in Stumbling and Mumbling on 2014-01-09 13:51:00
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Cited by:
  1. Piper, Alan T., 2012. "Dynamic Analysis and the Economics of Happiness: Rationale, Results and Rules," MPRA Paper 43248, University Library of Munich, Germany, revised Dec 2012.
  2. Cohen-Zada, Danny & Sander, William, 2010. "Religious Participation versus Shopping: What Makes People Happier?," IZA Discussion Papers 5198, Institute for the Study of Labor (IZA).
  3. Blázquez, Maite & Budría, Santiago, 2011. "Deprivation and Subjective Well-being: Evidence from Panel Data," Working Papers in Economic Theory 2011/08, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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