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Income and happiness across Europe: Do reference values matter?

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  • Caporale, Guglielmo Maria
  • Georgellis, Yannis
  • Tsitsianis, Nicholas
  • Yin, Ya Ping

Abstract

Using cross-sectional data from the first two rounds of the European Social Survey (ESS), we examine the relationship between income, relative income and happiness across 19 European countries. We find that a positive and statistically significant relationship between income and happiness does exist, but such a relationship is weakened by reference income. We also find that while reference income exerts a negative impact on happiness in the case of Western European countries, its effect is positive in the case of the Eastern European countries, a finding that is consistent with the 'tunnel effect' hypothesis. This suggests that for Eastern Europeans reference income is likely to be a source of information for forming expectations about their future economic prospects, rather than a yardstick measure for social comparisons.

Suggested Citation

  • Caporale, Guglielmo Maria & Georgellis, Yannis & Tsitsianis, Nicholas & Yin, Ya Ping, 2009. "Income and happiness across Europe: Do reference values matter?," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 42-51, February.
  • Handle: RePEc:eee:joepsy:v:30:y:2009:i:1:p:42-51
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    Keywords

    Comparison income Reference groups Happiness Life satisfaction;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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