Twins, Income, and Happiness: Evidence from China

Significance
One fundamental issue in economic, psychological, and social sciences is whether and how much income truly brings happiness. This paper draws on twins data to examine whether income indeed affects happiness and estimates the size of such an effect. We control for unobserved genetic factors that may impact both income and happiness using identical twins, address measurement error bias, and conduct a series of robustness checks. Income has a much larger effect than previous estimates: doubling income boosts the four-scale happiness value by 0.26 scales or 0.37 SDs. Heterogeneity analyses suggest that income matters most for males and the middle-aged. Our findings emphasize the importance of income maintenance for individuals’ well-being.

Abstract
We estimate the causal effect of income on happiness using a unique dataset of Chinese twins. This allows us to address omitted variable bias and measurement errors. Our findings show that individual income has a large positive effect on happiness, with a doubling of income resulting in an increase of 0.26 scales or 0.37 SDs in the four-scale happiness measure. We also find that income matters most for males and the middle-aged. Our results highlight the importance of accounting for various biases when studying the relationship between socioeconomic status and subjective well-being.