Gross National Happiness as an Answer to the Easterlin Paradox?

43 Pages Posted: 26 Apr 2005

See all articles by Rafael Di Tella

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Robert MacCulloch

Imperial College London - Tanaka Business School

Date Written: April 16, 2005

Abstract

The Easterlin Paradox refers to the fact that happiness data are typically stationary in spite of considerable increases in income. This amounts to a rejection of the hypothesis that current income is the only argument in the utility function. One possible answer is that human development involves more than current income (e.g., as argued by the UN). We find that the happiness responses of almost 400,000 people living in the OECD during 1975-1997 are positively correlated with absolute income, the generosity of the welfare state and (weakly) with life expectancy; it is negatively correlated with the average number of hours worked, measures of environmental degradation (SOx emissions), crime, openness to trade, inflation and unemployment; all after controlling for country and year dummies. The estimated effects separate across groups in a manner that appears broadly plausible (e.g., the rich suffer environmental degradation more than the poor). Based on their actual change, the biggest contributors to happiness in our sample have been the increase in income and the increase in life expectancy. Our accounting exercise suggests that the unexplained trend in happiness is even bigger than would be predicted if income was the only argument in the utility function. In other words, introducing omitted variables worsens the income-without-happiness paradox.

Keywords: Income, subjective well-being, quality of life

JEL Classification: D63, H0, I31, O0, Q3

Suggested Citation

Di Tella, Rafael and MacCulloch, Robert, Gross National Happiness as an Answer to the Easterlin Paradox? (April 16, 2005). Available at SSRN: https://ssrn.com/abstract=707405 or http://dx.doi.org/10.2139/ssrn.707405

Rafael Di Tella (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert MacCulloch

Imperial College London - Tanaka Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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