Easterlin-Types and Frustrated Achievers: The Heterogeneous Effects of Income Changes on Life Satisfaction

27 Pages Posted: 9 Aug 2008

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance

Fiammetta Rossetti

University of Rome II

Date Written: August 8, 2008

Abstract

We investigate the relationship between money and happiness across the waves of the British Household Panel Study by using a latent class approach which accounts for slope heterogeneity, omitted variable bias and departures from normality assumptions. Our findings reveal the presence of a vast majority of "Easterlin-type" individuals with positive but very weak relationship between changes in income and changes in happiness and a small minority (2 percent) of "frustrated achievers" with negative relationship. Such share is much below descriptive evidence on frustrated achievement (17.5 percent). The probability of belonging to such group is shown to be positively related with divorced status and negatively related to education and relative (personal to reference group) income. Our interpretation of these results is that the standard concave money-happiness relationship provides a partial and incomplete picture of the complex nexus between happiness and income as it does not take into account two important phenomena: the role of peers and of reference group income and that of the dynamics between realisations and expectations.

Keywords: income-life satisfaction relationship, heterogeneous effects, frustrated achievers

JEL Classification: C14, C23, I30

Suggested Citation

Becchetti, Leonardo and Corrado, Luisa and Rossetti, Fiammetta, Easterlin-Types and Frustrated Achievers: The Heterogeneous Effects of Income Changes on Life Satisfaction (August 8, 2008). CEIS Working Paper No. 127. Available at SSRN: https://ssrn.com/abstract=1212802 or http://dx.doi.org/10.2139/ssrn.1212802

Leonardo Becchetti (Contact Author)

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Fiammetta Rossetti

University of Rome II ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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