Money and Happiness: Income, Wealth and Subjective Well-Being

We examine the complex relationship between money and happiness. We find that both permanent income and wealth are better predictors of life satisfaction than current income and wealth. They matter not only in absolute terms but also in comparative terms. However, their relative impacts differ. The...

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Bibliographic Details
Published in:Social indicators research 2020-02, Vol.148 (1), p.47-66
Main Authors: D’Ambrosio, Conchita, Jäntti, Markus, Lepinteur, Anthony
Format: Article
Language:English
Subjects:
Assets
Economic models
Happiness
Households
Human Geography
Hypotheses
Income
Life satisfaction
Microeconomics
Money
Permanent income
Permanent wealth
Public Health
Quality of Life Research
Real estate
Reference Groups
Social research
Social Sciences
Sociology
SOEP
Taxation
Wealth
Well being
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Summary:We examine the complex relationship between money and happiness. We find that both permanent income and wealth are better predictors of life satisfaction than current income and wealth. They matter not only in absolute terms but also in comparative terms. However, their relative impacts differ. The first exerts a comparison effect—the higher the permanent income of the reference group, the lower life satisfaction—the second exerts an information effect—the higher the permanent wealth of the reference group, the higher life satisfaction. We also show that negative transitory shocks to income reduce life satisfaction while transitory shocks to wealth have no effect. Lastly, we analyse the effects of their components and find that not all of them predict life satisfaction: permanent taxes do not matter, while only the value of permanent real estate, financial and business assets do. Finally, we use quantile regression and analyse to what extent our results vary along the well-being distribution, finding the impacts to be larger at lower levels of life satisfaction.
ISSN:0303-8300
1573-0921
1573-0921
DOI:10.1007/s11205-019-02186-w