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Caporale, Guglielmo Maria
Georgellis, Yannis
Tsitsianis, Nicholas
Ping, Ya
Year of Publication: 
Series/Report no.: 
CESifo working paper 2146
Using data from the European Social Survey (ESS), we examine the link between income and subjective well-being. We find that, for the whole sample of nineteen European countries, although income is positively correlated with both happiness and life satisfaction, reference income exerts a negative effect on individual well-being, a result consistent with the relative utility hypothesis. Performing separate analyses for some Eastern European countries, we also find some evidence of a tunnel effect', in that reference income has a positive impact on subjective well-being. Our findings support the view that in environments with stable income and employment, reference income serves as a basis for social comparisons, whereas in relatively volatile environments, it is used as a source of information for forming expectations about future status.
comparison income
reference groups
life satisfaction
Document Type: 
Working Paper

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