Subjective well-being and consumption: defining the relationship and exploring the effects of overconsumption

Abstract

Previous economic studies on subjective well-being have primarily focused on income, and limited research has been conducted on the relationship between consumption and subjective well-being, which lies at the core of economic theory. This paper explores the effect of consumption on life satisfaction, using a new synthetic dataset with information on subjective well-being and consumption for Spanish households. The relationship between consumption and life satisfaction, and levels of consumption are analyzed with multiple linear regressions, while a semiparametric approach is applied through a generalized additive model (GAM). The instrumental variable approach does not confirm the presence of endogeneity, however the similarity of results from multiple approaches (GAM and linear regressions) may indicate a low severity of the issue of endogeneity in this model. This paper finds a concave curve defining the relationship between consumption and life satisfaction in both the linear regressions and the semi-parametric approach, representing a decreasing marginal effect of consumption.