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The Conflictive Relationship between Satisfaction and Income

  • Eduardo Lora

    ()

  • Juan Camilo Chaparro

This paper makes use of the 2006 Gallup World Survey, which includes opinions on satisfaction with various aspects of life in 130 countries. Although a very solid relationship is found between satisfaction and income (both across and within countries), raising doubts regarding the well-known Easterlin Paradox, a new paradox arises: “unhappy growth,” where faster growth rates are accompanied by lower levels of satisfaction. The losses of satisfaction associated with growth are more pronounced in the material domains of life and are greater in richer and more urban societies. At the individual level, although higher incomes tend to be reflected in greater satisfaction, an increase in the income of the social group to which an individual belongs has the opposite effect. The conflictive relationship between satisfaction and income has implications for political economy. In particular, it suggests a simple mechanism for explaining various characteristic traits of economic and social populism.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4599.

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Date of creation: Nov 2008
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Handle: RePEc:idb:wpaper:4599
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  1. Ed Diener & Ed Sandvik & Larry Seidlitz & Marissa Diener, 1993. "The relationship between income and subjective well-being: Relative or absolute?," Social Indicators Research, Springer, vol. 28(3), pages 195-223, March.
  2. Alois Stutzer, . "The Role of Income Aspirations in Individual Happiness," IEW - Working Papers 124, Institute for Empirical Research in Economics - University of Zurich.
  3. Di Tella, R. & MacCulloch, R.J.: Oswald, A.J., 1997. "The Macroeconomics of Happiness," Papers 19, Centre for Economic Performance & Institute of Economics.
  4. Christopher J. Ruhm, 2000. "Are Recessions Good For Your Health?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 617-650, May.
  5. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2001. "How Much Do We Care About Absolute Versus Relative Income and Consumption?," Working Papers in Economics 63, University of Gothenburg, Department of Economics.
  6. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4301, Inter-American Development Bank, Research Department.
  7. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
  8. Stevenson, Betsey & Wolfers, Justin, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," IZA Discussion Papers 3654, Institute for the Study of Labor (IZA).
  9. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
  10. Kingdon, Geeta Gandhi & Knight, John, 2007. "Community, comparisons and subjective well-being in a divided society," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 69-90, September.
  11. Carlsson, Fredrik & Gupta, Gautam & Johansson-Stenman, Olof, 2005. "Keeping Up with the Vaishyas: Caste and Relative Standing," Working Papers in Economics 171, University of Gothenburg, Department of Economics.
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