Abstract
In this study, we investigate the relationship between consumption and subjective well-being (SWB). There is clear evidence in the literature that the income–SWB relationship depends on the SWB measure, but the reasons are not fully clear yet; however, the main reason may be related to consumption because most income is used for that. This study is the first to examine directly whether the consumption–SWB relationship differs between affective, cognitive, and eudaimonic SWB measures. We adopt the following four SWB indices: life satisfaction, the Cantril ladder, affect balance, and eudaimonia. In addition, on the consumption side, we consider both material and relational consumption. Nonparametric analysis of our uniquely collected survey results in Japan suggests that total consumption contributes to cognitive measures of SWB and eudaimonia, while there is a certain threshold for affective measures. However, once material versus relational consumption is considered in total consumption, we find that relational consumption contributes to any SWB measure without clear upper bounds, while material consumption contributes to all SWB measures only to certain thresholds. Our results also show that the marginal effects of total consumption, material consumption, and relational consumption on cognitive measures of SWB and eudaimonia are greater than on affective measures. In addition, our results show that the marginal effects of relational consumption tend to be greater than those of material consumption for all SWB indices. Based on the findings, we expect relational consumption to be key for improving well-being.
Highlights
1.1 Income–SWB RelationshipThe paradox between income growth and a corresponding rise in reported subjective well-being (SWB) was identified nearly half a century ago in the seminal work of Easterlin (1974)
From the literature on the relationship between income and SWB, which we show in subsection 1.1, we expect cognitive measures and eudaimonia to be more correlated with consumption than affective measures
The horizontal axis corresponds to total monthly household consumption expenditure, material consumption, and relational consumption, respectively, while the SWB indicator is shown on the vertical axis
Summary
1.1 Income–SWB RelationshipThe paradox between income growth and a corresponding rise in reported subjective well-being (SWB) was identified nearly half a century ago in the seminal work of Easterlin (1974). There has been much debate about the income–SWB relationship In his more recent evaluation of the topic, Easterlin (2001) concludes that people with higher incomes, on average, are happier than those with lower incomes; there is a point of diminishing returns, he suggests that as income rises, people increase their material aspirations, which in turn undermines the potential gains of SWB. As Clark et al.’s (2008) literature review suggests, the general consensus of previous studies is in line with Easterlin’s conclusion that income raises happiness, with diminishing returns to income. Some of those studies include analyses using cross-sectional survey data from one country with or without standard demographic controls Other studies employ macroeconomic variables, including GDP, to control for country fixed effects (e.g. Di Tella et al 2003; Helliwell 2003; Leigh and Wolfers 2006)
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