Testing the Easterlin Hypothesis with Panel Data: The Dynamic Relationship between Life Satisfaction and Economic Growth in Germany and in the UK

45 Pages Posted: 23 May 2013 Last revised: 11 Jul 2014

See all articles by Tobias Pfaff

Tobias Pfaff

University of Münster

Johannes Hirata

Universität Osnabrück - University of Applied Sciences

Date Written: May 1, 2013

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 from previous research, we now count three countries for which Easterlin’s happiness-income hypothesis cannot be rejected: the United States, Germany, and the United Kingdom.

Keywords: Subjective well-being, economic growth, income, Easterlin hypothesis

JEL Classification: C23, D0, I31, O40, O52

Suggested Citation

Pfaff, Tobias and Hirata, Johannes, Testing the Easterlin Hypothesis with Panel Data: The Dynamic Relationship between Life Satisfaction and Economic Growth in Germany and in the UK (May 1, 2013). SOEPpaper No. 554, Available at SSRN: https://ssrn.com/abstract=2268546 or http://dx.doi.org/10.2139/ssrn.2268546

Tobias Pfaff (Contact Author)

University of Münster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

Johannes Hirata

Universität Osnabrück - University of Applied Sciences ( email )

Caprivistr. 30 A
Osnabrück, 49076
Germany

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