Journal
JOURNAL OF ECONOMIC PSYCHOLOGY
Volume 30, Issue 1, Pages 42-51Publisher
ELSEVIER
DOI: 10.1016/j.joep.2008.06.004
Keywords
Comparison income; Reference groups; Happiness; Life satisfaction
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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. (C) 2008 Elsevier B.V. All rights reserved.
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