Happiness and Economics. A description of the Reciprocal Effects between Subjective and Objective Indicators of Well-being

Abstract

Money makes you happy. Or is it vice versa? The present work is an attempt to identify, for Latin America, if economic growth (measured by Gross Domestic Product) as a well-being´sobjective indicator, affects subjective indicators of well-being (happiness). Or, on the contrary, are these subjective indicators that predict (may be because they determine) the behavior of GDP. On that propose, data on Latin America for the years 1995-2010 had been taken, including both types of indicators (objective and subjective). To avoid a model that imposes a certain direction of causality, an Autoregressive Vector methodology had been chosen, and to preserve the intra-country effects, a Panel model. That is, the methodology used is Panel-VAR. Evidence suggests that these relationships exists and manifest predominantly more strongly in the direction from the subjective to objective variable (except in the case of crisis). The subjective indicator anticipates (Wiener-Grangers cause) the objective indicator.It is also possible to identify differences between happiness and expectations.