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Testing the Easterlin hypothesis with panel data: The dynamic relationship between life satisfaction and economic growth in Germany and in the UK

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  • Pfaff, Tobias
  • Hirata, Johannes

Abstract

Recent studies focused on testing the Easterlin hypothesis (happiness and national income correlate in the cross-section but not over time) on a global level. We make a case for testing the Easterlin hypothesis at the country level where individual panel data allow exploiting important methodological advantages. Novelties of our test of the Easterlin hypothesis are a) long-term panel data and estimation with individual fixed effects, b) regional GDP per capita with a higher variation than national figures, c) accounting for potentially biased clustered standard errors when the number of clusters is small. Using long-term panel data for Germany and the United Kingdom, we do not find robust evidence for a relationship between GDP per capita and life satisfaction in either country (controlling for a variety of variables). Together with the evidence from previous research, we now count three countries for which Easterlin's happiness-income hypothesis cannot be rejected: the United States, Germany, and the United Kingdom.

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  • Pfaff, Tobias & Hirata, Johannes, 2013. "Testing the Easterlin hypothesis with panel data: The dynamic relationship between life satisfaction and economic growth in Germany and in the UK," CIW Discussion Papers 4/2013, University of Münster, Center for Interdisciplinary Economics (CIW).
  • Handle: RePEc:zbw:ciwdps:42013
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    Keywords

    subjective well-being; economic growth; income; Easterlin hypothesis; Subjektives Wohlbefinden; Wirtschaftswachstum; Einkommen; Easterlin-Hypothese;
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