The Effect of Income on Subjective Well-Being: Evidence from the 2008 Economic Stimulus Tax Rebates

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTThis paper uses tax rebate payments from the 2008 economic stimulus to estimate the effect of a one-time change in income on three measures of subjective well-being: life satisfaction, health satisfaction, and affect. The income effect is identified by exploiting the plausibly exogenous variation in the payment schedule of the rebates. Using both ordinary least squares and two-stage least squares estimators, I find that the rebates had a large and positive impact on affect, which is explained by a reduction in feelings of stress and worry. For life satisfaction and health satisfaction, there is weaker evidence of a positive impact. Overall, the results show that a temporary increase in liquidity may enhance emotional well-being and that this effect is relatively stronger for low-income respondents. JEL Classification Codes: I31, H31, E62

Long-run Effects of Lottery Wealth on Psychological Well-being

“…To credibly estimate the causal effects of wealth it is necessary to isolate a source of variation in wealth that is plausibly unrelated to other determinants of well-being. Studies in developed countries have exploited variation in wealth or income induced by lotteries (Brickman, Coates & Janoff-Bulman 1978, Lindahl 2005, Gardner & Oswald 2007, Kuhn et al 2011, Apouey & Clark 2015, tax rebates (Lachowska 2017), or within-person changes over time (e.g., Frijters, Haisken-DeNew & Shields 2004, Frijters et al 2006. These studies overwhelmingly conclude effects are positive, but the effect sizes vary substantially in magnitude.…”

The 2008 Economic Stimulus Payments Increased Emotional Well-Being

“…NOTE: The estimates come from the last two columns of Table 5 in Lachowska (2017). * denotes that the change in the share reporting a given emotion is statistically significant at a 5 percent level.…”

“…* denotes that the change in the share reporting a given emotion is statistically significant at a 5 percent level. SOURCE: Lachowska (2017).…”

“…This article draws heavily on Lachowska (2017). An earlier version of this paper is available as an Upjohn Institute working paper; see Lachowska (2015).…”

“…However, perhaps the best-known application of SWB in economics has been to answer the question, "Does more income make you happier?" This article highlights findings recently published in the Journal of Human Resources, in which Lachowska (2017) estimates the effect of income on SWB using exogenous variation in the timing of the 2008 economic stimulus tax rebate payments. Because the rebates were disbursed using a close-to-random schedule of payment, the tax rebate program offers an attractive setting for identifying the effect of a medium-sized income change on SWB, measured as life satisfaction, health satisfaction, or emotional well-being (also known as affect).…”