Money Doesn't Buy Happiness.... Or Does it? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption

32 Pages Posted: 2 Aug 2004

See all articles by Bruce Headey

Bruce Headey

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Ruud Muffels

Tilburg University

Mark Wooden

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; IZA Institute of Labor Economics

Date Written: July 2004

Abstract

The accepted view among psychologists and economists alike is that economic well-being has a statistically significant but only weak effect on happiness/subjective well-being (SWB). This view is based almost entirely on weak relationships with household income. The paper uses household economic panel data from five countries - Australia, Britain, Germany, Hungary and the Netherlands - to provide a reconsideration of the impact of economic well-being on happiness. The main conclusion is that happiness is considerably more affected by economic circumstances than previously believed. In all five countries wealth affects life satisfaction more than income. In the countries for which consumption data are available (Britain and Hungary), non-durable consumption expenditures also prove at least as important to happiness as income. Further, results from panel regression fixed effects models indicate that changes in wealth, income and consumption all produce significant, though not large, changes in satisfaction levels.

Keywords: consumption, economic well-being, income, life satisfaction, subjective well-being, wealth

JEL Classification: D19, D31, I31

Suggested Citation

Headey, Bruce and Muffels, Ruud and Wooden, Mark, Money Doesn't Buy Happiness.... Or Does it? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption (July 2004). IZA Discussion Paper No. 1218. Available at SSRN: https://ssrn.com/abstract=571661

Bruce Headey

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Ruud Muffels

Tilburg University ( email )

Postbus 90153
Tilburg, DC 5000 LE
Netherlands
0031134662795 (Phone)
0031134663003 (Fax)

HOME PAGE: http://www.uvt.nl/

Mark Wooden (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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