Assistant Professor, WISE & SOE, Xiamen University

Personal website: www.wise.xmu.edu.cn/people/faculty/39653e4b_d311_4de5_8974_041b546ad9dc.html 

This paper estimates the effect of income on individual self-reported happiness using unique Chinese twins data. We address three key challenges: omitted variable bias, measurement error bias, and reverse causality. To control for omitted genetic factors and family background, we use a within-monozygotic-twin-pair fixed-effects model. The instrumental variable fixed-effects method is used to correct measurement error bias. Finally we employ industry average income as an instrumental variable and suggest that the causality runs from income to happiness. The results are robust after we address concerns about potential biases of within-monozygotic-twin-pair estimates, use various measures of income and wealth, and consider the potential cross effect of twin sibling’s income. This paper adds to the literature on the causal effect of income on happiness, and to the best of our knowledge, it is the first such