Testing the Easterlin Hypothesis with Panel Data: The Dynamic Relationship between Life Satisfaction and Economic Growth in Germany and the UK

Tobias Pfaff and Johannes Hirata

No 554, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

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.

Keywords: Subjective well-being; economic growth; income; Easterlin hypothesis (search for similar items in EconPapers)
JEL-codes: C23 D0 I31 O40 O52 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2013
New Economics Papers: this item is included in nep-eur and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwsop:diw_sp554

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