Abstract
We examine the roles of macro-level adaptation — including social comparison effects becoming more important over time — and macroeconomic loss aversion in the time-series relationship between national income and subjective well-being. Models allowing for these phenomena are applied to cross-country panel data. We find evidence for macroeconomic loss aversion that becomes more important over time: the effects of economic growth become small and statistically insignificant in the long run, whereas the effects of contractions are large and long-lasting. The results are consistent with the Easterlin paradox and point to it being explained by macro-level adaptation to economic growth. Our results highlight the importance of allowing for both dynamics to distinguish long-run from short-run effects and asymmetries to recognize the important effects of contractions. Failing to do the former leads to a misleading impression of the long-run relationship between economic growth and well-being.
Funding source: Finnish Cultural Foundation
Award Identifier / Grant number: 00170305
Acknowledgements
We would like to thank Petteri Juvonen, Arto Luoma, Tuomas Malinen, Elias Oikarinen, Jari Vainiomäki, and the participants of the Nordic Conference on Behavioral and Experimental Economics in Tampere and the HEIRS conference in Rome and seminar participants in Helsinki, Jyväskylä, Tampere and Turku for helpful comments and discussions. Financial support from the Finnish Cultural Foundation (grant number 00170305) is gratefully acknowledged.
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Supplementary Material
The online version of this article offers supplementary material (https://doi.org/10.1515/bejeap-2020-0204).
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Articles in the same Issue
- Frontmatter
- Research Articles
- Media Capture and Bias in the Market for News
- Adaptation and Loss Aversion in the Relationship Between GDP and Subjective Well-Being
- Racial Disparity in COVID-19 Deaths: Seeking Economic Roots with Census Data
- Can Targeted Child Benefits Affect Fertility? Evidence from a Natural Experiment
- Does the Strength of Incentives Matter for Elected Officials? A Look at Tax Collectors
- Setting the Budget for Targeted Research Projects
- Can Unconditional In-Kind Transfers Keep Children Out of Work and in School? Evidence from Indonesia
- Anti-Mafia Law Enforcement and Lending in Mafia Lands. Evidence from Judicial Administration in Italy
- The Gender Wage Gap among Ph.D. Holders: Evidence from Italy
- Letters
- Political Budget Cycle, Tax Collection, and Yardstick Competition
- Impacts of Jobs Requiring Close Physical Proximity and High Interaction with the Public on U.S. Industry Employment Change During the Early Stages of the COVID-19 Pandemic
- Quality, Location and Collusion under Spatial Price Discrimination