Economic development can only buy happiness up to a ‘sweet spot’ of $36,000 GDP per person

Posted on December 2, 2013

Economists have shed light on the vexed question of whether economic development can buy happiness – and it seems that life satisfaction actually dips among people living in the wealthiest countries.

Politicians are intensely interested in the link between national wealth and levels of happiness among the population, but it is a subject which is still wide open to debate among economists.

A new analysis led by economists Eugenio Proto in the Centre for Competitive Advantage in the Global Economy at the University of Warwick and Aldo Rustichini, from University of MInnesota finds that as expected, for the poorest countries life satisfaction rises as a country’s wealth increases as people are able to meet their basic needs.

However, the new surprise finding is that once income reaches a certain level – around $36,000, adjusted for Purchasing Power Parity (PPP) - life satisfaction levels peaks, after which it appears to dip slightly in the very rich countries.

According to the most recent figures, the UK had a PPP-adjusted GDP per capita of roughly $37,000 dollars.

The researchers find suggestive evidence that this happiness dip in the wealthiest countries is because more money creates higher aspirations, leading to disappointment and a drop in life satisfaction if those aspirations are not met.

“As countries get richer, higher levels of GDP lead to higher aspiration. There is a sense of keeping up with the Joneses as people see wealth and opportunity all around them and aspire to having more.

“But this aspiration gap - the difference between actual income and the income we would like - eats away at life satisfaction levels.

“In other words, what we aspire to becomes a moving target and one which moves away faster in the richest countries, causing the dip in happiness we see in our analysis.”


Category(s):Happiness

Source material from University of Warwick


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