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Estimating the Causal Effects of Income on Happiness

Listed author(s):
  • Nattavudh Powdthavee

There is a long tradition of psychologists finding small income effects on life satisfaction (or happiness). Yet the issue of income endogeneity in life satisfaction equations has rarely been addressed. This paper aims to do just that. Instrumenting for income and allowing for unobserved heterogeneity result in an estimated income effect that is almost twice as large as the estimate in the basic specification. The results call for a reexamination on previous findings that suggest money buys little happiness, and a reevaluation on how the calculation of compensatory packages to various shocks in the individual's life events should be designed.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 09/02.

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Date of creation: Jan 2009
Handle: RePEc:yor:yorken:09/02
Contact details of provider: Postal:
Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom

Phone: (0)1904 323776
Web page: https://www.york.ac.uk/economics/
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  10. Colm Harmon & Ian Walker, 1995. "Estimates of the economic return to schooling for the United Kingdom," Open Access publications 10197/647, School of Economics, University College Dublin.
  11. N Powdthavee, 2008. "Ill-Health as a Household Norm: Evidence from Other People's Health Problems," Discussion Papers 08/21, Department of Economics, University of York.
  12. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
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  18. Powdthavee, Nattavudh, 2003. "Unhappiness and Crime : Evidence from South Africa," The Warwick Economics Research Paper Series (TWERPS) 685, University of Warwick, Department of Economics.
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