Abstract:
It is crucial to know the factors that influence happiness. This study investigates the determinants of happiness with an emphasis on comparison effects (income relative to others' income or relative to the own income in the past) and expectations about own future income. Nationally representative cross-sectional data collected by a Turkish survey on happiness of individuals 18 or older in years 2003-2011 are used to conduct regression analyses. The dataset includes around 6,000-7,000 individuals in each year. The findings of the study indicate that favorable income comparisons and expectations of future household income are correlated with a higher level of happiness, consistent with a model in which both comparisons and income expectations are seen as a consumption good. Secondly, comparisons and expectations bear on happiness asymmetrically. Third, the estimated effect of expecting higher income is smaller in Turkey than the estimates reported in the literature. Fourth, the magnitudes of the effects of comparisons and expectations depend on the business cycle. In crisis years, compared to years of economic expansion, the importance for happiness of having high absolute income is greater and the importance of having high relative income or high income expectations is lower. Finally, Turkish people have greater concern for their relative position in the society than for having higher absolute income in the future. Several robustness checks lend support to the validity of the aforementioned results.
