Is income catch-up related to happiness catch-up? Evidence from eight European countries

Abstract

The Easterlin paradox illuminates the counter-intuitive finding that happiness is unlikely to increase with economic growth over time. This study investigates the income–happiness relationship through the concept of β convergence (i.e., the catch-up effect). To this end, we first employed the KPSS panel unit root tests to reveal the time-varying patterns in convergences between the happiness index and real GDP per capita. Then, we conducted analyses of contingency for the linkage between the happiness catch-up and income catch-up effects via estimation using the random coefficient logit model. The data used in this study were obtained from World Database of Happiness and World Development Indicators Database. Our results indicate that both the happiness index and real GDP per capita in selected European countries exhibited signs of catch-up with their benchmark countries over the period of 1975–2020. The average income catch-up effect (generated from group mean of all individual effects) positively impacted the social harmonization of well-being (i.e., the average happiness catch-up effect). Since economic growth is the major force driving the income catch-up effect, the positive linkage between happiness and income catch-up effects provides solid proof of the beneficial effect of economic growth on the social harmonization of well-being.

Keywords

• Easterlin paradox
• Easterlin illusion
• β convergence
• Catch-up effect
• Stochastic convergence
• KPSS panel unit roottest