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Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels

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  • FitzRoy, Felix

    (University of St. Andrews)

  • Nolan, Michael A.

    (University of Hull)

  • Steinhardt, Max F.

    (Free University of Berlin)

  • Ulph, David

    (University of St. Andrews)

Abstract

In contrast to previous results combining all ages we find positive effects of comparison income on happiness for the under 45s, and negative effects for those over 45. In the BHPS these coefficients are several times the magnitude of own income effects. In GSOEP they cancel to give no effect of effect of comparison income on life satisfaction in the whole sample, when controlling for fixed effects, and time-in-panel, and with flexible, age-group dummies. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.

Suggested Citation

  • FitzRoy, Felix & Nolan, Michael A. & Steinhardt, Max F. & Ulph, David, 2013. "Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels," IZA Discussion Papers 7452, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7452
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    More about this item

    Keywords

    welfare; reference groups; age; comparison income; subjective life-satisfaction;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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