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Income growth and happiness: Reassessment of the Easterlin Paradox


  • Beja Jr., Edsel


This paper presents evidence of a positive but very small long run relationship between income growth and happiness, evidence that can disprove the Easterlin Paradox. However, the paper argues that there is actually reason to sustain the paradox because it finds the magnitude of the estimated relationship too small to suggest that income growth has substantial consequence in improving happiness over the long-term. Certainly, the evidence suggests that happiness is more than about raising incomes. This paper argues that a rejection of the paradox is acceptable if and only if the empirical findings indicate economic significance.

Suggested Citation

  • Beja Jr., Edsel, 2014. "Income growth and happiness: Reassessment of the Easterlin Paradox," MPRA Paper 53360, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:53360

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    References listed on IDEAS

    1. Carol Newman & Liam Delaney & Brian Nolan, 2008. "A Dynamic Model of the Relationship Between Income and Financial Satisfaction: Evidence from Ireland," The Economic and Social Review, Economic and Social Studies, vol. 39(2), pages 105-130.
    2. Ziliak, Stephen T. & McCloskey, Deirdre N., 2004. "Significance redux," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(5), pages 665-675, November.
    3. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
    4. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    5. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 834-852, December.
    6. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-1831, November.
    7. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, May.
    8. Wunder, Christoph, 2012. "Does subjective well-being dynamically adjust to circumstances?," Economics Letters, Elsevier, vol. 117(3), pages 750-752.
    9. Bottan, Nicolas Luis & Perez Truglia, Ricardo, 2011. "Deconstructing the hedonic treadmill: Is happiness autoregressive?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(3), pages 224-236, May.
    10. Stefano Bartolini & Ennio Bilancini & Francesco Sarracino, 2013. "Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(2), pages 169-191, November.
    11. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
    12. Vendrik, Maarten C.M., 2013. "Adaptation, anticipation and social interaction in happiness: An integrated error-correction approach," Journal of Public Economics, Elsevier, vol. 105(C), pages 131-149.
    13. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    14. Becchetti, Leonardo & Castriota, Stefano & Corrado, Luisa & Ricca, Elena Giachin, 2013. "Beyond the Joneses: Inter-country income comparisons and happiness," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 187-195.
    15. Paul, Satya & Guilbert, Daniel, 2013. "Income–happiness paradox in Australia: Testing the theories of adaptation and social comparison," Economic Modelling, Elsevier, vol. 30(C), pages 900-910.
    16. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    17. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-763, Part I Ju.
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    Cited by:

    1. Yew-Kwang Ng, 2016. "Welfare-Reducing Growth And Cost-Benefit Analysis: Essay In Memory Of E.J. Mishan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(03), pages 1-9, June.
    2. Easterlin, Richard A., 2016. "Paradox Lost?," IZA Discussion Papers 9676, Institute for the Study of Labor (IZA).

    More about this item


    Easterlin Paradox; income growth; happiness; dynamics;

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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