Relative Economic Status and Life Satisfaction:Evidence from the Targeted Poverty Alleviation Program in China
"Happiness"has been the common pursuit of all human beings throughout the ages,and people's well-being has been an essential focus of policy-making and scientific research.Since the 1970s,studies have found that people's happiness does not increase along with economic growth in the long term as predicted by economic theories,and there is no significant evidence for differences in happiness between developed and less-developed countries.These facts,summa-rized as the"Happiness Paradox"or"Easterlin Paradox,"have been inspiring economists to analyze happiness and its driving factors more widely.Due to the lack of exogenous shock,however,most studies can only access observational or survey data,which cannot avoid or effectively solve endogeneity problems such as endogenous selection of reference groups and omitted variables.Therefore,the robustness of the empirical results and the mechanisms need to be further ex-plored.Under the framework of causal identification,this research makes use of the external shock of China's Targeted Pov-erty Alleviation(TPA)Program on rural residents'relative income to test the impact of relative economic status changes on individuals'life satisfaction,namely,positional effect,and conducts mechanism analysis.Utilizing the Micro Tracking Database of Poor Populations,this research presents the patterns of individuals'life satisfaction in rural China and pro-vides references for comprehensively understanding people's well-being.The research covers the following aspects.To eradicate extreme poverty as quickly and effectively as possible,the Chinese government launched the TPA Program and established a system for monitoring poverty at the end of 2013.With the guidance and assistance of the central govern-ment,the cooperation of local governments,and the support of the society,the TPA Program has provided a comprehen-sive policy package including poverty alleviation strategies at both individual and regional levels.It not only significantly enhances the income levels of rural impoverished populations but also leads to a faster increase in income of impover-ished households than that of non-impoverished ones,thus presenting opportunities for causal identification of the posi-tional effect.First,this paper addresses the potential endogenous problems using the impact of relative economic status.The results show that when household income and regional average income hold,the relative economic status change sig-nificantly impacts the life satisfaction of rural residents,providing additional empirical evidence for the positional effect.Second,this paper introduces the relative economic status change into the utility function and proposes that the relative economic status can affect conspicuous consumption,the use of public goods and the accumulation of social capital of ru-ral households,which constitute three main mechanisms for the positional effect.Third,this paper discusses policy impli-cations for dealing with positional effects and improving life satisfaction.The results indicate that ensuring opportunity equality and improving the availability of public resources such as infrastructure and public services will enhance life sat-isfaction while alleviating the positional effects.The main contributions of this paper are as follows.First,by utilizing China's TPA Program as an exogenous policy shock and dealing with endogenous problems effectively,this paper provides more accurate identification results and mechanism examinations for the positional effects.Second,this paper constructs a utility function that incorporates changes in relative economic status and develops the classic economic theories,which are based on the homo eco-nomicus hypothesis and ignore social comparison as a determination of utility.Our results provide a comprehensive under-standing of rural residents'economic behaviors and decisions and a new perspective for further research on contemporary rural China.Third,as the Chinese government has achieved complete success in eradicating extreme poverty,and further aims to achieve more overall sustainable development in rural areas,the discussion of the mechanisms of positional ef-fects and possible solutions in this research indicate the necessity for policy-makers and researchers to switch from focus-ing on enhancing absolute income to generally improving people's happiness and life satisfaction.
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