Journal
AMERICAN ECONOMIC JOURNAL-MACROECONOMICS
Volume 7, Issue 4, Pages 160-187Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/mac.20120163
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Funding
- European Research Council under the European Union [282740]
- European Research Council (ERC) [282740] Funding Source: European Research Council (ERC)
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We reassess the empirical effects of income and employment on self-reported well-being. Our analysis makes use of a two-step estimation procedure that allows us to apply instrumental variable regressions with ordinal observable data. As suggested by the theory of incomplete markets, we differentiate between the effects of persistent and transitory income shocks. In line with this theory, we find that persistent shocks have a significant impact on happiness while transitory shocks do not. This also has consequences for inference about the happiness effect of employment. We find that employment per se is associated with a nonsignificant decline in happiness.
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