nep-hap New Economics Papers
on Economics of Happiness
Issue of 2016‒07‒30
four papers chosen by
Viviana Di Giovinazzo
Università degli Studi di Milano-Bicocca

  1. Entrepreneurs and Freelancers: Are They Time and Income Multidimensional Poor? - The German Case By Joachim Merz; Tim Rathjen
  2. Optimal Taxation when People Do Not Maximize Well-Being By Aart Gerritsen
  3. A Glance into the Tunnel: Experimental Evidence on Income Comparisons under Uncertainty By Harald Lang; Florian Morath
  4. Life Satisfaction and Keeping up with Other Countries By Ozan Eksi; Neslihan Kaya Eksi

  1. By: Joachim Merz; Tim Rathjen
    Abstract: Entrepreneurs and freelancers, the self-employed, commonly are characterized as not only to be relatively rich in income but also as to be rich in time because of their time-sovereignty in principle. Our introducing study scrutinises these results and notions about the well-being situation of self-employed persons not only by asking about traditional single income poverty but also by considering time poverty within the framework of a new interdependent multidimensional (IMD) poverty concept. The German Socio-economic panel with satisfaction data serves as the data base for the population wide evaluation of the substitution/compensation between genuine, personal leisure time and income. The available detailed Time Use Surveys of 1991/92 and 2001/2 of the Federal Statistics Office provide the data to quantify the multidimensional poverty in all the IMD poverty regimes. Important result: self-employed with regard to single income poverty, single time poverty and interdependent multidimensional time and income poverty in both years are much more affected by time and income poverty than all other active persons defining the working poor. A significant proportion of non-income-poor but time poor of the active population are not able to compensate their time deficit even by an above poverty income. These people are neglected so far within the poverty and well-being discussion, the discussion about the “working poor” and in the discussion about time squeeze and time pressure in general and in particular for the self-employed as entrepreneurs and freelancers.
    Keywords: Liberal professions (Freie Berufe), entrepreneurs, self-employed, interdependent multidimensionaltime and income poverty, time and income substitution, extended economic well-being, satisfaction/happiness,CES welfare function estimation, working poor, German Socio-Economic Panel, German Time Use Surveys1991/02 and 2001/02
    JEL: D31 D13 J22
    Date: 2016
  2. By: Aart Gerritsen
    Abstract: I derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well-being. This generates a corrective argument for taxation: optimal marginal taxes are higher (lower) if individuals work too much (too little) from a well-being point of view. I allow for multidimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics. One of these statistics measures the degree to which individuals fail to optimize their labor supply. I empirically estimate this by using British life satisfaction data as a measure of well-being. I ï¬ nd that low-income workers tend to work ‘too little’ and high-income workers ‘too much,’ providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution.
    Keywords: Optimal taxation, corrective taxation, subjective well-being
    JEL: H21 I31 D63
    Date: 2015–06
  3. By: Harald Lang; Florian Morath
    Abstract: Learning that others earn more may reduce individual well-being but it can also be informative about the own income prospects. In an environment of uncertainty over the own income, this paper provides experimental evidence on direct income-comparison effects on well-being and informational effects from observing signals about others' income prospects. We find that individual beliefs about the own income are adjusted downwards when observing that others are likely to earn less, but do not significantly adjust when observing that others are likely to earn more. Individual satisfaction decreases when others are likely to earn more but does not change significantly when others are likely to earn less. Overall, informational effects countervail direct incomecomparison effects if and only if the uncertainty over the own income is sufficiently strong.
    Keywords: Tunnel effect, relative income, expectations, belief formation, subjectivewell-being, experiment
    JEL: C91 D31 D63 D84
    Date: 2015–11
  4. By: Ozan Eksi; Neslihan Kaya Eksi
    Abstract: Micro income studies show that relative income of individuals—with respect to their colleagues, friends, etc.—affects their life satisfaction significantly. This paper attempts to extend these studies by using the idea that people may compare their well-beings not only to well-beings of their home country folks but also to well-beings of other country citizens. To test this hypothesis, we form several different country groups that a country may compare itself to and also use several relative deprivation measures. Using data from national surveys of 55 countries carried out from 1973 to 2011, we find that average life satisfaction of a country is significantly affected from how much the country is deprived compared to richer countries in the world. Furthermore, per capita income of country only matters as far as it affects the country’s relative position in the global income distribution. This result, gaining statistical significance after 1990s, is a potential explanation for the paradox that even though richer countries tend to be happier compared to poor ones, a country does not necessarily get happier as its income increases.
    Keywords: Life Satisfaction, Relative Deprivation, Global Comparison Groups
    JEL: I31 O57 Z13
    Date: 2016

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