Research Highlights

The effect of income on subjective well-being

Money may not buy happiness, but a new paper shows that it can enhance emotional well-being.

One-time, lump-sum tax rebates Americans received as part of the 2008 economic stimulus package offer a unique opportunity for estimating the effect of income on well-being. In a recent paper, accepted for publication by the Journal of Human Resources, Institute economist Marta Lachowska takes advantage of this opportunity to estimate the effects of those rebates on three measures of subjective well-being: 1) life satisfaction, 2) health satisfaction, and 3) affect (emotional well-being).

Although Lachowska finds positive effects on all three measures, the increase in affect is the most robust result and this increase is mostly due to a decrease in stress and worry. She also finds stronger effects for low-income people. That the rebates had an impact on reducing stress and worry is important because research in behavioral economics has argued that better emotional well-being among low-income people may increase patience and improve the ability to make informed economic decisions.

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