The Effect of Income on Subjective Well-Being: Evidence from the 2008 Economic Stimulus Tax Rebates

63 Pages Posted: 29 Oct 2015

See all articles by Marta Lachowska

Marta Lachowska

W.E. Upjohn Institute for Employment Research; Stockholm University - Department of Economics

Date Written: October 28, 2015

Abstract

This paper uses tax rebate payments from the 2008 economic stimulus to estimate the effect of a one-time change in income on three measures of subjective well-being: life satisfaction, health satisfaction, and affect. The income effect is identified by exploiting the plausibly exogenous variation in the payment schedule of the rebates. Using both ordinary least squares and two-stage least squares estimators, I find that the rebates had a large and positive impact on affect, which is explained by a reduction in feelings of stress and worry. For life satisfaction and health satisfaction, there is weaker evidence of a positive impact. Overall, the results show that a temporary increase in liquidity may enhance emotional well-being and that this effect is relatively stronger for low-income respondents.

Keywords: Subjective well-being, affect, income effect, quasi-experiment, instrumental variable

JEL Classification: I31, H31, E62

Suggested Citation

Lachowska, Marta, The Effect of Income on Subjective Well-Being: Evidence from the 2008 Economic Stimulus Tax Rebates (October 28, 2015). Journal of Human Resources, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2682543 or http://dx.doi.org/10.2139/ssrn.2682543

Marta Lachowska (Contact Author)

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

HOME PAGE: http://www.upjohn.org/AboutUs/Staff/Lachowska

Stockholm University - Department of Economics ( email )

Stockholm University
Stockholm, 10691
Sweden

HOME PAGE: http://www2.sofi.su.se/~mla/

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