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Reversing the Question. Does Happiness Affect Consumption and Savings Behavior?

Better understanding of the relationship between happiness and economic behavior may help design economic policies such as tax and retirement policies, and regulate the timing of macroeconomic announcements. I examine the impact of happiness on consumption and savings behavior. I use data from the DNB Household Survey from the Netherlands and the German Socio-Economic Panel. Instrumenting individual happiness with regional sunshine, the results suggest that happier people save more, spend less, and have a lower marginal propensity to consume. Happier people take more time for making decisions and have more control over expenditures; they expect a longer life and (accordingly) seem more concerned about the future than the present; they also expect less in ation in the future. The results of the paper might also help understand the observed low coefficient on income in any happiness equation that does not instrument income.

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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2008_20.

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Length: 55 pages
Date of creation: 30 Oct 2008
Date of revision:
Handle: RePEc:dkn:econwp:eco_2008_20
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