No. 2018-07 - Heterogeneities in adaptation to income - Comparative evidence from GSOEP and UKHLS

Date: 30 April 2018

Do people adapt to dfferent levels of household income? Using data from GSOEP (1984-2015) and UKHLS (1996-2015), I show that while German women do, German men and those living in the UK do not. Following Vendrik (2013), I arrive at this surprising answer by estimating (dynamic) life satisfaction equations, in which I simultaneously enter contemporaneous and lagged terms for a respondent’s own household income and that respondent’s estimated reference income. Additionally, I instrument for own income and include lags of all control variables. I further find that adaptation is limited to those in the middle of the German income distribution and that in both countries, the long-run effects of own and reference income are greater at the bottom of the distribution than at the top. Moreover, I give a comprehensive account of the puzzling and often divergent results of Di Tella et al. (2010), Pfaff (2013), Ferrer-i Carbonell and van Praag (2008) and Binder and Coad (2010). What was found ...

Caspar Kaiser

Employment, Equity and Growth

No. 2018-07 - Heterogeneities in adaptation to income - Comparative evidence from GSOEP and UKHLS


Type: inet-working-paper

Kaiser, C. (2018). 'Heterogeneities in adaptation to income - Comparative evidence from GSOEP and UKHLS'. INET Oxford Working Paper No. 2018-07.


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