Income and Happiness Across Europe: Do Reference Values Matter?

33 Pages Posted: 26 Nov 2007

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Yannis Georgellis

University of Kent

Nicholas NT Tsitsianis

University of Hertfordshire

Ya Ping Yin

University of Hertfordshire

Date Written: November 2007

Abstract

Using data from the European Social Survey (ESS), we examine the link between income and subjective well-being. We find that, for the whole sample of nineteen European countries, although income is positively correlated with both happiness and life satisfaction, reference income exerts a negative effect on individual well-being, a result consistent with the relative utility hypothesis. Performing separate analyses for some Eastern European countries, we also find some evidence of a 'tunnel effect', in that reference income has a positive impact on subjective well-being. Our findings support the view that in environments with stable income and employment, reference income serves as a basis for social comparisons, whereas in relatively volatile environments, it is used as a source of information for forming expectations about future status.

Keywords: comparison income, reference groups, happiness, life satisfaction

JEL Classification: I31

Suggested Citation

Caporale, Guglielmo Maria and Georgellis, Yannis and Tsitsianis, Nicholas NT and Yin, Ya Ping, Income and Happiness Across Europe: Do Reference Values Matter? (November 2007). CESifo Working Paper No. 2146, Available at SSRN: https://ssrn.com/abstract=1032568

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Yannis Georgellis

University of Kent ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Nicholas NT Tsitsianis

University of Hertfordshire ( email )

Business School
De Havilland Campus
Hatfield, Hertfordshire AL10 9AB
United Kingdom
01707 285549 (Phone)

HOME PAGE: http://web-apps.herts.ac.uk/uhweb/about-us/profiles/profiles_home.cfm?profile=D9F0FDED-0795-5A63-0DC

Ya Ping Yin

University of Hertfordshire ( email )

Hertford Herts, SG13 8QF
United Kingdom

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