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Money Doesn’t Buy Happiness… Or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption

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  • Headey, Bruce

    () (Melbourne Institute of Applied Economic and Social Research)

  • Muffels, Ruud

    () (Tilburg University)

  • Wooden, Mark

    () (Melbourne Institute of Applied Economic and Social Research)

Abstract

The accepted view among psychologists and economists alike is that economic well-being has a statistically significant but only weak effect on happiness/subjective well-being (SWB). This view is based almost entirely on weak relationships with household income. The paper uses household economic panel data from five countries – Australia, Britain, Germany, Hungary and the Netherlands – to provide a reconsideration of the impact of economic wellbeing on happiness. The main conclusion is that happiness is considerably more affected by economic circumstances than previously believed. In all five countries wealth affects life satisfaction more than income. In the countries for which consumption data are available (Britain and Hungary), non-durable consumption expenditures also prove at least as important to happiness as income. Further, results from panel regression fixed effects models indicate that changes in wealth, income and consumption all produce significant, though not large, changes in satisfaction levels.

Suggested Citation

  • Headey, Bruce & Muffels, Ruud & Wooden, Mark, 2004. "Money Doesn’t Buy Happiness… Or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption," IZA Discussion Papers 1218, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1218
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    References listed on IDEAS

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    More about this item

    Keywords

    economic well-being; life satisfaction; subjective wellbeing; income; consumption; wealth;

    JEL classification:

    • D19 - Microeconomics - - Household Behavior - - - Other
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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