Caporale, Guglielmo Maria, Georgellis, Yannis, Tsitsianis, Nicholas and Yin, Ya Ping (2009) Income and happiness across Europe: do reference values matter? Journal of Economic Psychology, 30(1), pp. 42-51. ISSN (print) 0167-4870

Abstract

Using cross-sectional data from the first two rounds of the European Social Survey (ESS), we examine the relationship between income, relative income and happiness across 19 European countries. We find that a positive and statistically significant relationship between income and happiness does exist, but such a relationship is weakened by reference income. We also find that while reference income exerts a negative impact on happiness in the case of Western European countries, its effect is positive in the case of the Eastern European countries, a finding that is consistent with the ?tunnel effect? hypothesis. This suggests that for Eastern Europeans reference income is likely to be a source of information for forming expectations about their future economic prospects, rather than a yardstick measure for social comparisons.

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