IDEAS home Printed from https://ideas.repec.org/a/spr/inrvec/v61y2014i4p329-346.html
   My bibliography  Save this article

Income growth and happiness: reassessment of the Easterlin Paradox

Author

Listed:
  • Edsel Beja

Abstract

The paper presents evidence of a positive but very small long-run relationship between income growth and happiness. Such finding is usually presented as a refutation of the Easterlin Paradox. The paper, however, argues that what the evidence actually reveals is that income growth has very little impact in terms of increasing happiness over the long term. The paper, in turn, argues that a rejection of the Easterlin Paradox requires the evidence to indicate economic significance. That is, the magnitude of the estimated long-run relationship between income growth and happiness is the more appropriate yardstick for an evaluation of the Easterlin Paradox. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Edsel Beja, 2014. "Income growth and happiness: reassessment of the Easterlin Paradox," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(4), pages 329-346, December.
  • Handle: RePEc:spr:inrvec:v:61:y:2014:i:4:p:329-346
    DOI: 10.1007/s12232-014-0211-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s12232-014-0211-y
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s12232-014-0211-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-1831, November.
    2. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 53-72, Spring.
    3. Carol Newman & Liam Delaney & Brian Nolan, 2008. "A Dynamic Model of the Relationship Between Income and Financial Satisfaction: Evidence from Ireland," The Economic and Social Review, Economic and Social Studies, vol. 39(2), pages 105-130.
    4. Betsey Stevenson & Justin Wolfers, 2013. "Subjective Well-Being and Income: Is There Any Evidence of Satiation?," American Economic Review, American Economic Association, vol. 103(3), pages 598-604, May.
    5. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, May.
    6. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    7. Becchetti, Leonardo & Castriota, Stefano & Corrado, Luisa & Ricca, Elena Giachin, 2013. "Beyond the Joneses: Inter-country income comparisons and happiness," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 187-195.
    8. Ziliak, Stephen T. & McCloskey, Deirdre N., 2004. "Significance redux," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(5), pages 665-675, November.
    9. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
    10. Frey, Bruno S & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," Economic Journal, Royal Economic Society, vol. 110(466), pages 918-938, October.
    11. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    12. Albert O. Hirschman & Michael Rothschild, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic DevelopmentWith A Mathematical Appendix," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(4), pages 544-566.
    13. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 834-852, December.
    14. Ruut Veenhoven & Floris Vergunst, 2014. "The Easterlin illusion: economic growth does go with greater happiness," International Journal of Happiness and Development, Inderscience Enterprises Ltd, vol. 1(4), pages 311-343.
    15. Sacks, Daniel W. & Stevenson, Betsey & Wolfers, Justin, 2012. "The New Stylized Facts about Income and Subjective Well-Being," IZA Discussion Papers 7105, Institute of Labor Economics (IZA).
    16. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    17. Wunder, Christoph, 2012. "Does subjective well-being dynamically adjust to circumstances?," Economics Letters, Elsevier, vol. 117(3), pages 750-752.
    18. Bottan, Nicolas Luis & Perez Truglia, Ricardo, 2011. "Deconstructing the hedonic treadmill: Is happiness autoregressive?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(3), pages 224-236, May.
    19. Knight, John & Gunatilaka, Ramani, 2012. "Income, aspirations and the Hedonic Treadmill in a poor society," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 67-81.
    20. Tom Engsted, 2009. "Statistical vs. Economic Significance in Economics and Econometrics: Further comments on McCloskey & Ziliak," CREATES Research Papers 2009-17, Department of Economics and Business Economics, Aarhus University.
    21. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
    22. Stefano Bartolini & Ennio Bilancini & Francesco Sarracino, 2013. "Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(2), pages 169-191, November.
    23. Paul, Satya & Guilbert, Daniel, 2013. "Income–happiness paradox in Australia: Testing the theories of adaptation and social comparison," Economic Modelling, Elsevier, vol. 30(C), pages 900-910.
    24. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    25. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    26. Carol Graham, 2011. "Adaptation amidst Prosperity and Adversity: Insights from Happiness Studies from around the World," The World Bank Research Observer, World Bank, vol. 26(1), pages 105-137, February.
    27. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-320, June.
    28. Tom Engsted, 2009. "Statistical vs. economic significance in economics and econometrics: further comments on McCloskey and Ziliak," Journal of Economic Methodology, Taylor & Francis Journals, vol. 16(4), pages 393-408.
    29. Easterlin, Richard A. & Morgan, Robson & Switek, Maggie & Wang, Fei, 2013. "China's Life Satisfaction, 1990-2010," IZA Discussion Papers 7196, Institute of Labor Economics (IZA).
    30. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    31. Easterlin, Richard A. & Angelescu McVey, Laura, 2009. "Happiness and Growth the World Over: Time Series Evidence on the Happiness-Income Paradox," IZA Discussion Papers 4060, Institute of Labor Economics (IZA).
    32. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-750, December.
    33. repec:hal:pseose:halshs-00754447 is not listed on IDEAS
    34. John Knight & Ramani Gunatilaka, 2011. "Does Economic Growth Raise Happiness in China?," Oxford Development Studies, Taylor & Francis Journals, vol. 39(1), pages 1-24.
    35. Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-763, Part I Ju.
    36. Easterlin, Richard A., 2013. "Happiness and Economic Growth: The Evidence," IZA Discussion Papers 7187, Institute of Labor Economics (IZA).
    37. Vendrik, Maarten C.M., 2013. "Adaptation, anticipation and social interaction in happiness: An integrated error-correction approach," Journal of Public Economics, Elsevier, vol. 105(C), pages 131-149.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Beja, Edsel Jr., 2018. "Testing the Easterlin Paradox: Results and Policy Implications," MPRA Paper 101075, University Library of Munich, Germany.
    2. Easterlin, Richard A. & O’Connor, Kelsey J., 2020. "The Easterlin Paradox," GLO Discussion Paper Series 743, Global Labor Organization (GLO).
    3. Tinghui Li & Junhao Zhong & Mark Xu, 2019. "Does the Credit Cycle Have an Impact on Happiness?," IJERPH, MDPI, vol. 17(1), pages 1-19, December.
    4. Bartolini, Stefano & Sarracino, Francesco, 2021. "Happier and Sustainable. Possibilities for a post-growth society," MPRA Paper 108309, University Library of Munich, Germany.
    5. Easterlin, Richard A., 2017. "Paradox Lost?," Review of Behavioral Economics, now publishers, vol. 4(4), pages 311-339, December.
    6. Yew-Kwang Ng, 2016. "Welfare-Reducing Growth And Cost-Benefit Analysis: Essay In Memory Of E.J. Mishan," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(03), pages 1-9, June.
    7. Edsel L. Beja Jr., 2018. "Testing the easterlin paradox: Results and policy implications," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 2(2), pages 79-83, September.
    8. Kaiser, Caspar F. & Vendrik, Martinus, 2018. "Different versions of the Easterlin Paradox: New evidence for European countries," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    9. Francesco Sarracino & Kelsey J. O’Connor, 2021. "Economic growth and well-being beyond the Easterlin paradox," Chapters, in: Luigino Bruni & Alessandra Smerilli & Dalila De Rosa (ed.), A Modern Guide to the Economics of Happiness, chapter 9, pages 162-188, Edward Elgar Publishing.
    10. Chen, Fuzhong & Hsu, Chien-Lung & Lin, Arthur J. & Li, Haifeng, 2020. "Holding risky financial assets and subjective wellbeing: Empirical evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    11. Charles-Henri DiMaria & Chiara Peroni & Francesco Sarracino, 2022. "From Economic Productivity to Productive Well-Being: the Role of Life Satisfaction and Adjusted Net Savings," International Productivity Monitor, Centre for the Study of Living Standards, vol. 43, pages 62-80, Fall.
    12. Sarracino, Francesco & O'Connor, Kelsey J. & Ono, Hiroshi, 2019. "Making economic growth and well-being compatible: evidence from Japan," MPRA Paper 93010, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    2. Beja Jr., Edsel, 2013. "Does economic prosperity bring about a happier society? Empirical remarks on the Easterlin Paradox debate sans Happiness Adaptation," MPRA Paper 50633, University Library of Munich, Germany.
    3. Beja Jr., Edsel, 2013. "Does economic prosperity bring about a happier society? Empirical remarks on the Easterlin Paradox debate," MPRA Paper 49446, University Library of Munich, Germany.
    4. Beja, Edsel Jr., 2018. "Testing the Easterlin Paradox: Results and Policy Implications," MPRA Paper 101075, University Library of Munich, Germany.
    5. Sun Youn Lee & Fumio Ohtake, 2021. "How Conscious Are You of Others? Further Evidence on Relative Income and Happiness," Journal of Happiness Studies, Springer, vol. 22(8), pages 3321-3356, December.
    6. Byela Tibesigwa & Martine Visser & Brennan Hodkinson, 2016. "Effects of Objective and Subjective Income Comparisons on Subjective Wellbeing," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(1), pages 361-389, August.
    7. Fengyu Wu, 2020. "An Examination of the Effects of Consumption Expenditures on Life Satisfaction in Australia," Journal of Happiness Studies, Springer, vol. 21(8), pages 2735-2771, December.
    8. Edsel L. Beja Jr., 2018. "Testing the easterlin paradox: Results and policy implications," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 2(2), pages 79-83, September.
    9. AMENDOLA, Adalgiso & DELL'ANNO, Roberto & PARISI, Lavinia, 2015. "Happiness, Inequality and Relative Concerns in European Countries," CELPE Discussion Papers 136, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    10. Di Tella, Rafael & MacCulloch, Robert, 2008. "Gross national happiness as an answer to the Easterlin Paradox?," Journal of Development Economics, Elsevier, vol. 86(1), pages 22-42, April.
    11. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2006. "Income and happiness: Evidence, explanations and economic implications," PSE Working Papers halshs-00590436, HAL.
    12. Abel Brodeur & Sarah Flèche, 2019. "Neighbors' Income, Public Goods, and Well‐Being," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(2), pages 217-238, June.
    13. Cai, Shu & Park, Albert, 2016. "Permanent income and subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 298-319.
    14. Elena Bárcena-Martín & Cortés Aguilar Alexandra & Ana I. Moro Egido, 2013. "The role of proximity and social comparisons on subjective well-being," ThE Papers 13/10, Department of Economic Theory and Economic History of the University of Granada..
    15. Salland, Jan, 2021. "Income Comparison and Happiness within Households," Working Paper 191/2021, Helmut Schmidt University, Hamburg.
    16. Van Landeghem, Bert & Vandeplas, Anneleen, 2018. "The relationship between status and happiness: Evidence from the caste system in rural India," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 77(C), pages 62-71.
    17. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
    18. Beja Jr, Edsel, 2013. "Does economic prosperity bring about a happier society? Mathematical remarks on the Easterlin Paradox debate," MPRA Paper 48229, University Library of Munich, Germany.
    19. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    20. Wen-Chun Chang, 2013. "Climbing up the Social Ladders: Identity, Relative Income, and Subjective Well-being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 113(1), pages 513-535, August.

    More about this item

    Keywords

    Easterlin Paradox; Income growth; Happiness; Dynamics; A20; C53; I30; O40;
    All these keywords.

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:inrvec:v:61:y:2014:i:4:p:329-346. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.