Income and happiness across Europe : do reference values matter?

G.M. Caporale, Y. Georgellis, N. Tsitsianis, Y.P. Yin

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118 Citations (Scopus)


Using cross-sectional data from the first two rounds of the European Social Survey (ESS), we examine the relationship between income, relative income and happiness across 19 European countries. We find that a positive and statistically significant relationship between income and happiness does exist, but such a relationship is weakened by reference income. We also find that while reference income exerts a negative impact on happiness in the case of Western European countries, its effect is positive in the case of the Eastern European countries, a finding that is consistent with the ‘tunnel effect’ hypothesis. This suggests that for Eastern Europeans reference income is likely to be a source of information for forming expectations about their future economic prospects, rather than a yardstick measure for social comparisons.
Original languageEnglish
Pages (from-to)42-51
JournalJournal of Economic Psychology
Issue number1
Publication statusPublished - 2009


  • comparison income
  • reference groups
  • happiness
  • life satisfaction


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