Relationship Between Happiness and Income : Evidence from Panel Smoothing Transition Regression (PSTR) in Great Britain

The purpose of the paper is to test empirically the relationship between happiness, life satisfaction and income in Great Britain. The methodology followed is panel smoothing transition regression (PSTR) models using the British Household Panel Survey (BHPS). The data period examined in the current study covers the period 1991-2009. Regarding the logistic PSTR model the findings show that in the linear regime the association between household income, happiness and life satisfaction is insignificant. After some point the income has positive and significant effects on both subjective well-being measures. In the linear regime of the exponential PSTR model the relationship between income and the happiness is positive; however after a specific level of income the association becomes negative. On the other hand, the exponential PSTR model shows that the positive association between income and life satisfaction holds even for higher income levels. The originality of the paper is that panel smoothing transition regression (PSTR) models based on micro-level household data have not been employed before, examining the nonlinear relationship between income happiness and life satisfaction. Both logistic and exponential PSTR models are useful