Abstract
I use instrumental variables to estimate the causal effect of family income on the frequency with which individuals experience negative emotions. Doubling income reduces the experience of negative emotions by 0.26 SD on average. Percentage changes in income have a constant effect on negative emotion for family incomes below $80,000. Above $80,000, the effect of percentage changes declines, reaching zero at $200,000. A dollar change in family income has an eight times larger effect at the 20th percentile of income than the 80th percentile. Effects of income are similar on the high levels of negative emotion characteristic of mental illness, except there is no satiation.
Highlights
Income is widely used as a measure of individual welfare in economics
Summary Statistics I work with a subsample of the Panel Study of Income Dynamics (PSID) that contains all adults aged 23 and older who responded to the K6 question at least once
I further limit the sample to individuals who were employed in at least one year in which they answered the K6 questions to facilitate the construction of an instrumental variable
Summary
Income is widely used as a measure of individual welfare in economics. The theory of revealed preference holds that income produces well-being indirectly by enabling the acquisition of goods and services. Income is an indirect measure of welfare. Since the 1970s, a literature has developed that seeks to measure subjective well-being (SWB) more directly through survey questions. An important task of this literature has been to understand the relationship between SWB and income.. Andrew Loucky and Anthony Gatti provided excellent research assistance. The Ohio Supercomputer Center provided a grant of computing resources.
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