Wealth, health, and happiness: An inverse story of the Easterlin Paradox in China

Abstract

One popular explanation for the Easterlin paradox is that income growth over time is usually accompanied by industrialization and pollution, which cause damage to happiness that cannot be reflected by income change. We examine this explanation by exploring the effects of a large-scale environmental regulation program -the “Two Control Zones (TCZ)” Policy- on subjective well-being (SWB) using data from a series of household surveys in China. We find that, the regulation has successfully mitigated air pollution in the implemented area, although at the cost of local income. Overall, the environmental effect dominates the income effect and TCZ policy increases the SWB of affected people. In particular, despite its negative effect on income, by controlling air pollution, the TCZ policy brought a net increase in residential happiness with a money value of ￥59.04 per month in terms of 2009 CNY. This finding supports the environmental explanation of the Easterlin paradox.