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
Date Written: May 1, 2013
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: Suggested Citation