Negative Emotions, Income, and Welfare: Causal Estimates from the PSID

Published in Journal of Economic Behavior and Organization, 2016

Recommended citation: Clingingsmith (2016). "Negative Emotions, Income, and Welfare: Casual Estimates from the PSID" Journal of Economic Behavior and Organization. 130, 1-19.

I use instrumental variables to estimate the causal effect of family income on the frequency with which individuals experience negative emotions. Doubling income reduces the experience of negative emotions by 0.26 SD on average. Percentage changes in income have a constant effect on negative emotion for family incomes below $80,000. Above $80,000, the effect of percentage changes declines, reaching zero at $200,000. A dollar change in family income has an eight times larger effect at the 20th percentile of income than the 80th percentile. Effects of income are similar on the high levels of negative emotion characteristic of mental illness, except there is no satiation. Download ungated version here