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Estimating the Causal Effects of Income on Happiness

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  • Nattavudh Powdthavee

Abstract

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.

Suggested Citation

  • Nattavudh Powdthavee, 2009. "Estimating the Causal Effects of Income on Happiness," Discussion Papers 09/02, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:09/02
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Money, reputation and happiness
      by chris dillow in Stumbling and Mumbling on 2009-03-05 23:27:55
    2. Living wage trade-offs
      by chris dillow in Stumbling and Mumbling on 2013-02-03 17:57:55
    3. Guaranteed Income and Living Wages
      by Eric Crampton in Offsetting Behaviour on 2013-02-04 03:58:00
    4. Tories & the minimum wage
      by ? in Stumbling and Mumbling on 2014-01-09 19:51:00

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    Cited by:

    1. Asadullah, M. Niaz & Xiao, Saizi & Yeoh, Emile, 2018. "Subjective well-being in China, 2005–2010: The role of relative income, gender, and location," China Economic Review, Elsevier, vol. 48(C), pages 83-101.
    2. Alpaslan Akay & Corrado Giulietti & Juan Robalino & Klaus Zimmermann, 2014. "Remittances and well-being among rural-to-urban migrants in China," Review of Economics of the Household, Springer, vol. 12(3), pages 517-546, September.
    3. Cohen-Zada, Danny & Sander, William, 2010. "Religious Participation versus Shopping: What Makes People Happier?," IZA Discussion Papers 5198, Institute for the Study of Labor (IZA).
    4. repec:bla:labour:v:31:y:2017:i:4:p:480-493 is not listed on IDEAS
    5. Maite Blázquez Cuesta & Santiago Budría, 2014. "Deprivation and Subjective Well-Being: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 655-682, December.
    6. repec:gam:jsusta:v:10:y:2017:i:1:p:36-:d:124218 is not listed on IDEAS
    7. Piper, Alan T., 2012. "Dynamic Analysis and the Economics of Happiness: Rationale, Results and Rules," MPRA Paper 43248, University Library of Munich, Germany, revised Dec 2012.
    8. Attavanich, Witsanu, 2017. "Impact of the First-Time Car Buyer Program on the Environmental Cost of Air Pollution in Bangkok," MPRA Paper 83170, University Library of Munich, Germany.
    9. repec:col:000174:016026 is not listed on IDEAS
    10. repec:lde:journl:y:2018:i:88:p:183-205 is not listed on IDEAS
    11. Howley, P., 2016. "Valuing the benefits from health care interventions using life satisfaction data," Health, Econometrics and Data Group (HEDG) Working Papers 16/01, HEDG, c/o Department of Economics, University of York.
    12. Bossler, Mario & Broszeit, Sandra, 2016. "Do minimum wages increase job satisfaction? : micro data evidence from the new German minimum wage," IAB Discussion Paper 201615, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    13. Haining Wang & Zhiming Cheng & Russell Smyth, 2015. "Does Consuming More Make You Happier? Evidence from Chinese Panel Data," Monash Economics Working Papers 29-15, Monash University, Department of Economics.
    14. repec:taf:rjapxx:v:16:y:2011:i:2:p:163-182 is not listed on IDEAS

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