Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels

36 Pages Posted: 22 Jun 2013

See all articles by Felix R. Fitzroy

Felix R. Fitzroy

University of St. Andrews; IZA Institute of Labor Economics

Michael A. Nolan

University of Hull - Department of Economics

Max Friedrich Steinhardt

Free University of Berlin (FUB) - Department of Business and Economics; IZA Institute of Labor Economics; Centro Studi Luca D'Agliano (LdA); Hamburg Institute of International Economics (HWWI)

David Ulph

University College London - Department of Economics; Government of the United Kingdom - Inland Revenue

Abstract

In contrast to previous results combining all ages we find positive effects of comparison income on happiness for the under 45s, and negative effects for those over 45. In the BHPS these coefficients are several times the magnitude of own income effects. In GSOEP they cancel to give no effect of effect of comparison income on life satisfaction in the whole sample, when controlling for fixed effects, and time-in-panel, and with flexible, age-group dummies. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.

Keywords: subjective life-satisfaction, comparison income, reference groups, age, welfare

JEL Classification: D10, I31, J10

Suggested Citation

Fitzroy, Felix R. and Nolan, Michael A. and Steinhardt, Max Friedrich and Ulph, David, Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels. IZA Discussion Paper No. 7452, Available at SSRN: https://ssrn.com/abstract=2283567 or http://dx.doi.org/10.2139/ssrn.2283567

Felix R. Fitzroy (Contact Author)

University of St. Andrews ( email )

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Michael A. Nolan

University of Hull - Department of Economics ( email )

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Max Friedrich Steinhardt

Free University of Berlin (FUB) - Department of Business and Economics ( email )

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David Ulph

University College London - Department of Economics ( email )

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