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Gross National Happiness as an Answer to the Easterlin Paradox?

  • Rafael Di Tella

    (Harvard Business School)

  • Robert MacCulloch

    (Imperial College London)

The Easterlin Paradox refers to the fact that happiness data are typically stationary in spite of considerable increases in income. This amounts to a rejection of the hypothesis that current income is the only argument in the utility function. One possible answer is that human development involves more than current income (e.g., as argued by the UN). We find that the happiness responses of almost 400,000 people living in the OECD during 1975-97 are positively correlated with absolute income, the generosity of the welfare state and (weakly) with life expectancy; it is negatively correlated with the average number of hours worked, measures of environmental degradation (SOx emissions), crime, openness to trade, inflation and unemployment; all after controlling for country and year dummies. The estimated effects separate across groups in a manner that appears broadly plausible (e.g., the rich suffer environmental degradation more than the poor). Based on their actual change, the biggest contributors to happiness in our sample have been the increase in income and the increase in life expectancy. Our accounting exercise suggests that the unexplained trend in happiness is even bigger than would be predicted if income was the only argument in the utility function. In other words, introducing omitted variables worsens the income-without-happiness paradox.

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Paper provided by EconWPA in its series Macroeconomics with number 0504027.

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Length: 43 pages
Date of creation: 18 Apr 2005
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Handle: RePEc:wpa:wuwpma:0504027
Note: Type of Document - pdf; pages: 43
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