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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.

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File URL: http://mpra.ub.uni-muenchen.de/53360/1/MPRA_paper_53360.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53360.

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Date of creation: 01 Feb 2014
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Handle: RePEc:pra:mprapa:53360
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  1. Betsey Stevenson & Justin Wolfers, 2013. "Subjective Well-Being and Income: Is there any Evidence of Satiation?," CESifo Working Paper Series 4222, CESifo Group Munich.
  2. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
  3. 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, Springer, vol. 114(2), pages 169-191, November.
  4. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  5. 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.
  6. Rafael Di Tella & John Haisken-De New & Robert MacCulloch, 2007. "Happiness Adaptation to Income and to Status in an Individual Panel," NBER Working Papers 13159, National Bureau of Economic Research, Inc.
  7. Clark, Andrew E. & Senik, Claudia, 2009. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," IZA Discussion Papers 4414, Institute for the Study of Labor (IZA).
  8. Tom Engsted, 2009. "Statistical vs. economic significance in economics and econometrics: further comments on McCloskey and Ziliak," Journal of Economic Methodology, Taylor & Francis Journals, vol. 16(4), pages 393-408.
  9. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  10. 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.
  11. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
  12. Carol Graham, 2011. "Adaptation amidst Prosperity and Adversity: Insights from Happiness Studies from around the World," World Bank Research Observer, World Bank Group, vol. 26(1), pages 105-137, February.
  13. 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.
  14. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  15. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 53-72, Spring.
  16. 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.
  17. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
  18. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  19. 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.
  20. Leonardo Becchetti & Stefano Castriota & Elena Giachin, 2010. "Beyond the Joneses: inter-country income comparisons and happiness," Econometica Working Papers wp25, Econometica.
  21. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gall is not listed on IDEAS
  22. Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 544-66, November.
  23. Sacks, Daniel W. & Stevenson, Betsey & Wolfers, Justin, 2012. "The New Stylized Facts about Income and Subjective Well-Being," IZA Discussion Papers 7105, Institute for the Study of Labor (IZA).
  24. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  25. John Knight & Ramani Gunatilaka, 2011. "Does Economic Growth Raise Happiness in China?," Oxford Development Studies, Taylor & Francis Journals, vol. 39(1), pages 1-24.
  26. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  27. John Knight & Ramani Gunatilaka, 2009. "Income, Aspirations and the Hedonic Treadmill in a Poor Society," Economics Series Working Papers 468, University of Oxford, Department of Economics.
  28. Wunder, Christoph, 2012. "Does subjective well-being dynamically adjust to circumstances?," Economics Letters, Elsevier, vol. 117(3), pages 750-752.
  29. Tom Engsted, 2009. "Statistical vs. Economic Significance in Economics and Econometrics: Further comments on McCloskey & Ziliak," CREATES Research Papers 2009-17, School of Economics and Management, University of Aarhus.
  30. 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.
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