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Are optimistic expectations keeping the Chinese happy?

  • Paul Frijters



  • Amy Y.C. Liu



  • Xin Meng



In this paper we study the effect of optimistic income expectations on life satisfaction amongst the Chinese population. Using a large scale household survey conducted in 2002 we find that the level of optimism about the future is particularly strong in the countryside and amongst rural-to-urban migrants. The importance of these expectations for life satisfaction is particularly pronounced in the urban areas, though also highly significant for the rural area. If expectations were to reverse from positive to negative, we calculate that this would have doubled the proportion of unhappy people and reduced proportion of very happy people by 48%. We perform several robustness checks to see if the results are driven by variations in precautionary savings or reverse causality.

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Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 37.

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Length: 45
Date of creation: 24 Nov 2008
Date of revision:
Handle: RePEc:qut:auncer:2008-26
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  1. Das, Marcel & van Soest, Arthur, 1999. "A panel data model for subjective information on household income growth," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 409-426, December.
  2. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270 National Bureau of Economic Research, Inc.
  3. de Grip, Andries & Lindeboom, Maarten & Montizaan, Raymond, 2009. "Shattered Dreams: The Effects of Changing the Pension System Late in the Game," IZA Discussion Papers 4034, Institute for the Study of Labor (IZA).
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  6. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
  7. Senik, Claudia, 2006. "Is man doomed to progress?," CEPREMAP Working Papers (Docweb) 0608, CEPREMAP.
  8. Grip Andries de & Lindeboom Maarten & Montizaan Raymond, 2009. "Dreams: The Effects of Changing the Pension System Late in the Game," Research Memorandum 043, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Appleton, Simon & Song, Lina, 2008. "Life Satisfaction in Urban China: Components and Determinants," World Development, Elsevier, vol. 36(11), pages 2325-2340, November.
  10. Jonathan A. Parker & Markus K. Brunnermeier, 2004. "Optimal Expectations," Econometric Society 2004 North American Winter Meetings 426, Econometric Society.
  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. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  13. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  14. Claudia Senik, 2002. "When Information Dominates Comparison. A Panel Data Analysis Using Russian Subjective Data," DELTA Working Papers 2002-02, DELTA (Ecole normale supérieure).
  15. John Knight & Ramani Gunatilaka, 2007. "Great Expectations? The Subjective Well-Being of Rural-Urban Migrants in China," Economics Series Working Papers 322, University of Oxford, Department of Economics.
  16. Michael Hagerty, 2003. "Was Life Better in the “Good Old Days”? Intertemporal Judgments of Life Satisfaction," Journal of Happiness Studies, Springer, vol. 4(2), pages 115-139, June.
  17. John Knight & Ramani Gunatilaka, 2008. "Aspirations, Adaptation and Subjective Well-Being of Rural-Urban Migrants in China," Economics Series Working Papers 381, University of Oxford, Department of Economics.
  18. repec:cup:cbooks:9780521771269 is not listed on IDEAS
  19. John Knight & Ramani Gunatilaka, 2010. "The Rural-Urban Divide in China: Income but Not Happiness?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(3), pages 506-534.
  20. Benjamin, Dwayne & Brandt, Loren & Giles, John, 2010. "Did higher inequality impede growth in rural China ?," Policy Research Working Paper Series 5483, The World Bank.
  21. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
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