Testing the Easterlin hypothesis with panel data: The dynamic relationship between life satisfaction and economic growth in Germany and in the UK

Tobias Pfaff and Johannes Hirata

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

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 presented in Stevenson and Wolfers (2008, BROOKINGS PAP ECO AC), we now count three exceptions supporting Easterlin s happiness-income hypothesis: the United States, Germany, and the United Kingdom.

JEL-codes: C23 I31 O40 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-hap
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Citations: View citations in EconPapers (4)

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