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Consumption and life satisfaction at different levels of economic development

Abstract

The present paper proposes to examine the impact of varying consumption categories on life satisfaction at different levels of development by focusing on transition countries and developed European countries. This is done by looking at the Life in Transition Surveys (I and II) that include reported life satisfaction, as well as control variables such as gender, household size, marital status, age, and education (EBRD, http://www.ebrd.com/pages/research/publications/special/lifeintransition.shtml 2007; http://www.ebrd.com/pages/research/publications/special/transitionII.shtml 2011). The study includes several categories such as expenditures on food, education, and durables. The paper also examines the impact of the reduction in several consumption items on life satisfaction after the 2008 crisis. The econometric results reveal that not all consumption items are statistically significant as determinants of life satisfaction. At different levels of development, the relationship between life satisfaction and consumption differs and some consumption categories have a negative impact on life satisfaction. Finally, the reduction in the level of consumption due to economic crises has a negative impact on life satisfaction.

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Notes

  1. Two meanings of “utility” are distinguished: “Decision utility” is the weight of an outcome of a decision. “Experienced utility,” which is ignored by modern economic theory, is of a hedonic quality and can be reported in real time, or in evaluations of past experiences. Please see: Kahneman et al. (1997).

  2. Although there is a huge debate in the literature as to whether happiness is relative or not (Veenhoven 1991; Oswald 1997; Stutzer 2004; Myers and Diener 1995; Diener et. al. 1993; McBride 2001), most of the economists take it as a matter of course that a higher income leads to greater level of happiness.

  3. The most accurate recall based measure of total expenditure is derived from asking about an exhaustive list of highly disaggregated expenditure items (Please see: Browning et al. 2003).

  4. For detailed information about the methodology please see: (The World Bank (2014) http://data.worldbank.org/indicator/PA.NUS.PPPC.RF.

  5. The results in this paper were substantively the same whether OLS or an ordinal level technique (ordered probit) was used, the results of ordered probit regressions are available to researchers upon request.

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Acknowledgments

I would like to express my gratitude to the participants (at EHERO congress titled “Advances in Happiness Economics” at Erasmus University Rotterdam, October 2013) for their valuable comments on the earlier version of this paper. I am indebtedness to Ruut Veenhoven and Luca Stanca who initiated the special issue on consumption and happiness. Finally I would like to thank to my colleagues Maarten Vendrik, Ruut Veenhoven and Ozge Gokdemir and anonymous referees for their valuable comments and suggestions.

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Correspondence to Devrim Dumludag.

Appendix

Appendix

See Tables 8 and 9.

Table 8 Descriptive statistics—country groups (EBRD 2007)
Table 9 Descriptive statistics—country groups (EBRD 2011)

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Dumludag, D. Consumption and life satisfaction at different levels of economic development. Int Rev Econ 62, 163–182 (2015). https://doi.org/10.1007/s12232-015-0226-z

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Keywords

  • Life satisfaction
  • Transition countries
  • Developed countries
  • Consumption

JEL Classification

  • D11
  • D6
  • I31
  • O1