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Balanced Growth: A Potential Resolution to the Easterlin Paradox

39 Pages Posted: 25 Jan 2008 Last revised: 14 Jul 2013

Guoqiang Tian

Texas A&M University - Department of Economics

Xinli Wang

University of Toronto at Scarborough

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: March 2013

Abstract

This paper develops a theory to explain the Easterlin Paradox, which holds that average happiness levels do not necessarily increase as countries grow wealthier, by analyzing the different roles of income and non-income factors in promoting happiness. Our theory shows that happiness rises with income only up to a critical point that is determined by the amount of non-income factors. Once the critical income level is achieved, increased income no longer buys more happiness, and so the only way to promote happiness is to improve non-income factors. As a policy implication, governments should promote balanced growth between income and non-income factors to maintain sustained happiness. The empirical analysis provides evidence supporting our theoretical predictions.

Keywords: Easterlin Paradox, income vs. non-income factors, happiness, social comparison

JEL Classification: D61, D62, H23

Suggested Citation

Tian, Guoqiang and Wang, Xinli and Yang, Liyan, Balanced Growth: A Potential Resolution to the Easterlin Paradox (March 2013). Available at SSRN: https://ssrn.com/abstract=1087403 or http://dx.doi.org/10.2139/ssrn.1087403

Guoqiang Tian

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States
979-845-7393 (Phone)
979-847-8757 (Fax)

HOME PAGE: http://econ.tamu.edu/tian/tian.htm

Xinli Wang

University of Toronto at Scarborough

1265 Military Trail
Scarborough, Ontario M1C 1A4
Canada

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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