The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data

Neve, Jan‐Emmanuel De; Ward, George; Keulenaer, Femke de; Landeghem, Bert Van; Kavetsos, Georgios; Norton, Michael I.

doi:10.1162/rest_a_00697

Cited by 109 publications

(66 citation statements)

References 72 publications

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“…In addition, this effect of spending cuts doesn't seem to be driven by economic downturn. 5 This paper is closely related to the literature on the macroeconomic of happiness (Di Tella et al 2003;De Neve et al, 2018). For instance, Di Tella et al (2003) show that movements in reported well-being are correlated with changes in macroeconomic variables such as the GDP.…”

Section: Introductionmentioning

confidence: 79%

The (Subjective) Well-Being Cost of Fiscal Policy Shocks

Eklou

Fall

2020

IMF Working Papers

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Do discretionary spending cuts and tax increases hurt social well-being? To answer this question, we combine subjective well-being data covering over half a million of individuals across 13 European countries, with macroeconomic data on fiscal consolidations. We find that fiscal consolidations reduce individual well-being in the short run, especially when they are based on spending cuts. In addition, we show that accompanying monetary and exchange rate policies (disinflation, depreciations and the liberalization of capital flows) mitigate the well-being cost of fiscal consolidations. Finally, we investigate the well-being consequences of the two well-knowns expansionary fiscal consolidations episodes taking place in the 80s (in Denmark and Ireland). We find that even expansionary fiscal consolidations can have well-being costs. Our results may therefore shed some light on why some governments may choose to consolidate through taxes even at the cost of economic growth. Indeed, if spending cuts are to generate a large well-being loss, they can trigger an opposition and protest against a fiscal consolidation plan and hence making it politically costly.

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Section: Introductionmentioning

confidence: 79%

The (Subjective) Well-Being Cost of Fiscal Policy Shocks

Eklou

Fall

2020

IMF Working Papers

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“…30 Finally, column (6) shows that for the group of 13 Eastern European (EE) countries the coefficient of trend lnGDPpc is marginally (p = 0.06) significant, positive, and large. 26 Graphs for individual countries like Figure 1 show that the recent Euro crisis is picked up by trend lnGDPpc for the medium term (λ = 6.25), and Figure A.1 strongly suggests that mean life satisfaction in the four SE countries was heavily affected by the Euro crisis (see also De Neve et al, 2018). This may be reflected in a high sensitiveness of mean life satisfaction in these countries to differences in long-term economic growth with other EU-13 countries.…”

Section: Insert Figure 2 Herementioning

confidence: 96%

Different Versions of the Easterlin Paradox: New Evidence for European Countries

Kaiser

Vendrik

2019

The Economics of Happiness

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Richer people are happier than poorer people, but when a country becomes richer over time, its people do not become happier. This seemingly contradictory pair of findings of Richard Easterlin has become famous as the Easterlin Paradox. However, it was met with counterevidence. To shed more light on this controversy, we distinguish between five different versions of the paradox. These versions apply to either groups of countries or individual countries, and to either the long or the medium term. We argue that the long term is most appropriate for testing the paradox, and that tests of the paradox should always control for an autonomous time trend.Unfortunately, this requirement renders the long-term version of the paradox for individual countries untestable.We test all other versions of the paradox with Eurobarometer data from 27 European countries. We do so by estimating country-panel equations for mean life satisfaction that include trend and cyclical components of per capita GDP as regressors. When testing variants of the paradox that apply to groups of countries, we find a clear and robust confirmation of the long-and medium-term versions of the paradox for a group of nine Western and Northern European countries. Moreover, we obtain a non-robust rejection of the medium-term variant of the paradox for a set of eleven Eastern European countries. On the level of individual countries, the medium-term variant of the paradox clearly holds for the nine Western and Northern European countries, but is consistently rejected for Greece, Ireland, Italy, and Spain. In the case of the Eastern European countries, the medium-term version of the paradox is rejected for Bulgaria, Lithuania, and Poland. As the Western and Northern European countries have a high per capita GDP as compared to that of Southern and Eastern European countries, our results are in line with the finding of Proto and Rustichini (2013), who find a non-monotonic relation between per capita GDP and life satisfaction over time which is positive for poorer countries, but flat (or negative) for richer countries.JEL codes: I31, I32, O11

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“…De Neve et al. (2018) hypothesize higher individual sensitivity to losses than to gains in economic growth. They report that various polls on measures of subjective well‐being are consistent with this hypothesis.…”

Section: Literature Reviewmentioning

confidence: 99%

Shortfall aversion

Guasoni

Huberman

Ren

2020

Mathematical Finance

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Shortfall aversion reflects the higher utility loss of spending cuts from a reference than the utility gain from similar spending increases. Inspired by Prospect Theory's loss aversion and the peak‐end rule, this paper posits a model of utility from spending scaled by past peak spending. In contrast to traditional models, which call for spending rates proportional to wealth, the optimal policy in this model implies a constant spending rate equal to the historical peak when wealth is relatively large. The spending rate increases when wealth reaches a model‐determined multiple of peak spending. In 1926–2015, shortfall‐averse spending is smooth and typically increasing.

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The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data

Cited by 109 publications

References 72 publications

The (Subjective) Well-Being Cost of Fiscal Policy Shocks

The (Subjective) Well-Being Cost of Fiscal Policy Shocks

Different Versions of the Easterlin Paradox: New Evidence for European Countries

Shortfall aversion

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