Subjective well-being and income: A compromise between Easterlin paradox and its critiques

Rusen Yasar

No 2017-113, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: Despite rising popularity of subjective well-being (SWB) as a proxy for utility, its relationship with income is still unresolved. Against the background of debates around the 'Easterlin paradox', this paper seeks a compromise between two positions: one that insists on individual relative income, and one that finds similarity between individual and aggregate levels. Proposing a model which puts the emphasis on the interaction between individual and aggregate-level factors, it argues that the effect of relative income on SWB varies across countries as a function of average income, in addition to a relatively small direct effect of the latter, in partial agreement with the two major positions. The model is tested cross-sectionally on the data from the latest wave of World Values Survey. The results from hierarchical mixed-effect models confirm the main argument. But further examination reveals that there is still unaccounted variation especially in middle-income economies.

Keywords: subjective well-being; Easterlin paradox; relative income; national income (search for similar items in EconPapers)
JEL-codes: C31 D31 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-hap and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:2017113

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