Poverty and Well-Being: Panel Evidence from Germany

We consider the link between poverty and subjective well-being, and focus in particular on the role of time. We use panel data on 42,500 individuals living in Germany from 1992 to 2010 to uncover four empirical relationships. First, life satisfaction falls with both the incidence and intensity of contemporaneous poverty. There is no evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. Third, poverty scars: those who have been poor in the past report lower life satisfaction today, even when out of poverty. Last, the order of poverty spells matters: for a given number of poverty spells, satisfaction is lower when the spells are concatenated: poverty persistence reduces well-being. These effects differ by population subgroups.