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Income–happiness paradox in Australia: Testing the theories of adaptation and social comparison

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  • Paul, Satya
  • Guilbert, Daniel

Abstract

This paper investigates whether the theories of adaptation and social comparison can explain the income–happiness puzzle (Easterlin Paradox) in Australia. Alternative specifications of happiness model that incorporate adaption, comparison incomes and other relevant variables are estimated using the panel data from the five waves (2001–2005) of the Household Income and Labour Dynamics in Australia (HILDA) surveys. The statistical tests provide no support for the adaptation effect on happiness. However, we find strong support for the theory of social comparison as an explanation for the happiness paradox. An increase in peer group income hurts the poor more than the rich, suggesting that a redistribution of income is likely to enhance the overall wellbeing of society. A sensitivity analysis is conducted to check the robustness of results.

Suggested Citation

  • Paul, Satya & Guilbert, Daniel, 2013. "Income–happiness paradox in Australia: Testing the theories of adaptation and social comparison," Economic Modelling, Elsevier, vol. 30(C), pages 900-910.
  • Handle: RePEc:eee:ecmode:v:30:y:2013:i:c:p:900-910
    DOI: 10.1016/j.econmod.2012.08.034
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    References listed on IDEAS

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    Cited by:

    1. Cheng, Zhiming & Smyth, Russell, 2015. "Crime victimization, neighborhood safety and happiness in China," Economic Modelling, Elsevier, vol. 51(C), pages 424-435.
    2. repec:bof:bofitp:urn:nbn:fi:bof-201508181355 is not listed on IDEAS
    3. Haining Wang & Zhiming Cheng & Russell Smyth, 2015. "Does Consuming More Make You Happier? Evidence from Chinese Panel Data," Monash Economics Working Papers 29-15, Monash University, Department of Economics.
    4. repec:spr:jhappi:v:18:y:2017:i:3:d:10.1007_s10902-016-9746-9 is not listed on IDEAS
    5. Lin, Yi-Chen & Hwang, Ruey-Ching & Deng, Wen-Shuenn, 2015. "Heterogeneity in the relationship between subjective well-being and its determinants over the life cycle: A varying-coefficient ordered probit approach," Economic Modelling, Elsevier, vol. 49(C), pages 372-386.
    6. AMENDOLA, Adalgiso & DELL'ANNO, Roberto & PARISI, Lavinia, 2015. "Happiness, Inequality and Relative Concerns in European Countries," CELPE Discussion Papers 136, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    7. Matthew Manning & Christopher L. Ambrey & Christopher M. Fleming, 2016. "A Longitudinal Study of Indigenous Wellbeing in Australia," Journal of Happiness Studies, Springer, vol. 17(6), pages 2503-2525, December.
    8. Ehsan Latif, 2015. "Happiness Adaptation to Income: Evidence from Canada," Economics Bulletin, AccessEcon, vol. 35(3), pages 1477-1487.
    9. repec:spr:endesu:v:19:y:2017:i:3:d:10.1007_s10668-016-9771-1 is not listed on IDEAS
    10. Beja Jr., Edsel, 2014. "Income growth and happiness: Reassessment of the Easterlin Paradox," MPRA Paper 53360, University Library of Munich, Germany.
    11. Ambrey, Christopher L. & Fleming, Christopher M. & Manning, Matthew, 2016. "The hedonistic cost of the Black Saturday bushfires," 2016 Conference (60th), February 2-5, 2016, Canberra, Australia 235304, Australian Agricultural and Resource Economics Society.
    12. Edsel Beja, 2014. "Income growth and happiness: reassessment of the Easterlin Paradox," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(4), pages 329-346, December.
    13. repec:eee:ecmode:v:68:y:2018:i:c:p:475-483 is not listed on IDEAS

    More about this item

    Keywords

    Life satisfaction; Adaptation; Comparison income; Easterlin paradox;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D6 - Microeconomics - - Welfare Economics
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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