Determinants of Happiness in India: Time Series Ordered Probit Estimation of Subjective Well-Being

Abstract

Attaining the highest level of happiness is the utmost concern of individuals as well as the nations and the whole human society. Individuals feel happiness can be achieved by acquiring income and material perquisites. Though wealth and happiness are positively correlated within a society at a given point of time, in the long run, increasing the income of all in a country may not raise the happiness of all. This lack of a systematic long-run relationship between income and happiness is often due to social comparison, in which individuals evaluate their life satisfaction relative to others’ income. Using the WVS data for eight states of India for the period 1990–2006, this paper examines whether individuals’ happiness or life satisfaction is influenced by their absolute income or by relative income. The estimated ordered probit results show that relative income matters more than individual absolute income for the happiness of individuals. An improvement in the income rank of an individual relative to the reference group will increase the individual happiness level. The results are consistent with the Easterlin paradox that social comparison explains the nill income-happiness relationship in the long run and only relative income/position matters for happiness more than absolute income.

Keywords: Subjective Well-Being, Income Effect, Social Comparison, Reference Income, Absolute vs Relative Income, Income Rank, Ordered Probit Estimation

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