Different Versions of the Easterlin Paradox: New Evidence for European Countries

Abstract:

According to the Easterlin Paradox, richer people are happier than poorer people, but when a country becomes richer over time, its people do not become happier. There is debate on whether this paradox holds. To shed light on this controversy, we distinguish between five different versions of the paradox. They apply to either groups of countries or individual countries, and to either the long or the medium term. We argue that the long term is most appropriate for testing the paradox, and that tests of the paradox should control for an autonomous time trend. We conduct such tests by estimating country-panel equations for mean life satisfaction in 27 European countries that include trend and cyclical components of per capita GDP as regressors. Concerning groups of countries, we find a robust confirmation of the long- and medium-term versions of the paradox for a group of nine Western and Northern European countries. Moreover, we obtain a non-robust rejection of the medium-term variant of the paradox for a set of 11 Eastern European countries. Regarding individual countries, the medium-term variant of the paradox holds for the nine Western and Northern European countries, but is rejected for Greece, Ireland, Italy, Spain, Bulgaria, Lithuania, and Poland.