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CESifo Working Paper No. 2394

Economic Growth and Subjective Well-Being:
Reassessing the Easterlin Paradox

Abstract

The “Easterlin paradox” suggests that there is no link between a society’s economic
development and its average level of happiness. We re-assess this paradox analyzing multiple
rich datasets spanning many decades. Using recent data on a broader array of countries, we
establish a clear positive link between average levels of subjective well-being and GDP per
capita across countries, and find no evidence of a satiation point beyond which wealthier
countries have no further increases in subjective well-being. We show that the estimated
relationship is consistent across many datasets and is similar to the relationship between
subject well-being and income observed within countries. Finally, examining the relationship
between changes in subjective well-being and income over time within countries we find
economic growth associated with rising happiness. Together these findings indicate a clear
role for absolute income and a more limited role for relative income comparisons in
determining happiness.

JEL Code: D6, I3, J1.

Keywords: happiness, subjective well-being, Easterlin Paradox, life satisfaction, economic
growth, well-being-income gradient, hedonic treadmill.

This draft: August 19, 2008

First draft: 2/15/2008

The authors would like to thank Gary Becker, David Blanchflower, Angus Deaton, Richard
Easterlin, Carol Graham, Daniel Kahneman, Alan Krueger, David Laibson, Andrew Oswald,
and Luis Rayo for useful discussions, and Gale Muller and his colleagues at Gallup for access
to and help with the Gallup World Poll. Rohak Doshi and Michael L. Woodford provided
excellent research assistance. We would like to thank the Zicklin Center for Business Ethics
Research and the Zell/Lurie Real Estate Center for generous research support. The data and
Stata programs used in this paper are available for download from the authors’ homepages.

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