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The magic triangle of macroeconomics: how do European countries score?

  • Heinz Welsch

This paper studies the macroeconomic performance of the EU-12 member countries over 1990--2002 from the point of view of the subjective well-being (life satisfaction) of the citizens. The paper uses data for over 50,000 individuals and controls for personal characteristics (especially income and employment status). Life satisfaction is found to be negatively associated with the unemployment rate and inflation, but positively associated with the growth rate. In contrast to earlier findings, the weights placed on inflation and unemployment are of a similar magnitude. The life satisfaction regression is used to determine the weights to be attached to growth, employment, and price stability in a macroeconomic performance index. It is found that the overall macroeconomic performance ranking of the countries is robust across alternative specifications of the index. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 63 (2011)
Issue (Month): 1 (January)
Pages: 71-93

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Handle: RePEc:oup:oxecpp:v:63:y:2011:i:1:p:71-93
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