Are Americans Really Less Happy with Their Incomes?

Abstract

Recent economic research on international comparisons of subjective well-being suffers from several important biases due to the potential incomparability of response scales within and across countries. In this paper we concentrate on self-reported satisfaction with income in two countries: The Netherlands and the US. The comparability problem is addressed by using anchoring vignettes. We find that in the raw data, Americans appear decidedly less satisfied with their income than the Dutch. It turns out however that after response scale adjustment based on vignettes, the distribution of satisfaction in the two countries is essentially identical. In addition, we find that the within-country cross-sectional effect of income on satisfaction-a key parameter in the recent debate in the economic literature-is significantly under-estimated especially in the US-when differences in response scales are not taken into account.

Well-Being across America

“…This result is in the same spirit as the argument of Deaton (2008) on international cross-section data (see also Kapteyn, Smith, & Soest, 2008). It might seem natural for economists to expect a powerful connection between income and happiness, but a recent review of the evidence in the psychology literature, for example, argues: ''Within most economically developed nations, richer people are only slightly happier than most others'' (Diener & Biswas-Diener, 2002).…”

Income growth is unlikely to help, but we can learn from international comparisons

“…In countries with a less progressive tax system, there appears to be a stronger relationship between personal income and life satisfaction. This is consistent with the results from Kapteyn et al (2013), who found that satisfaction with income has a much stronger relationship with own income in the USA than in The Netherlands. One interpretation of this is that in a country with a less progressive tax system, marginal tax rates are lower and hence private consumption possibilities increase more sharply with income; an alternative interpretation is that if citizens derive more satisfaction from higher income, they are less willing to tolerate higher marginal tax rates.…”

An analysis of the cost of disability across Europe using the standard of living approach

“…Second, it is also worth mentioning the existence of a relatively strong positive correlation between in-kind social benefits on disability and the mentioned cost of disability across countries. In this respect, it should be kept in mind that in-kind benefits are not included in the concept of income available in the 22 The effect of income on subjective well-being can be also affected by potential incomparability of response scales across countries (Kapteyn et al 2013), with a possible impact on the cost of disability. However, again, we rule out this explanation as it would only apply to the subjective-indirect approach.…”