Testing the Easterlin hypothesis with panel data : the dynamic relationship between life satisfaction and economic growth in Germany and in the UK ; conference paper

Recent studies focused on testing the Easterlin hypothesis (happiness and national income correlate in the cross-section but not over time) on a global level. We make a case for testing the Easterlin hypothesis at the country level where individual panel data allow exploiting important methodological advantages. Novelties of our test of the Easterlin hypothesis are a) long-term panel data and estimation with individual fixed effects, b) regional GDP per capita with a higher variation than national figures, c) accounting for potentially biased clustered standard errors when the number of clusters is small. Using long-term panel data for Germany and the United Kingdom, we do not find robust evidence for a relationship between GDP per capita and life satisfaction in either country (controlling for a variety of variables). Together with the evidence presented in Stevenson and Wolfers (2008, BROOKINGS PAP ECO AC), we now count three exceptions supporting Easterlin s happiness-income hypothesis: the United States, Germany, and the United Kingdom.