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Income or Consumption: Which Better Predicts Subjective Well‐Being?
Author(s) -
Carver Thomas,
Grimes Arthur
Publication year - 2019
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12414
Subject(s) - economics , consumption (sociology) , subjective well being , index (typography) , standard of living , econometrics , well being , measure (data warehouse) , permanent income hypothesis , household income , demographic economics , public economics , happiness , psychology , macroeconomics , geography , computer science , social psychology , life cycle hypothesis , social science , sociology , archaeology , database , world wide web , market economy , psychotherapist
The positive relationship between income and subjective well‐being has been well documented. However, work assessing the relationship of alternative material well‐being metrics to subjective well‐being (SWB) is limited. Consistent with the permanent income hypothesis, we find that a consumption‐based measure out‐performs (surveyed) income in predicting subjective well‐being. When objective measures of consumption are combined with self‐assessments of a household’s standard of living, income becomes insignificant altogether. We obtain our result utilizing household‐level data from Statistics New Zealand’s New Zealand General Social Survey which contains measures of income, SWB and a measure of material well‐being called the Economic Living Standard Index that combines measures of consumption flows and self‐assessments of material well‐being.