Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification

摘要

One of the most prominent political and economic events of recent decades was the falling of the Berlin Wall on November 9, 1989, which was quickly followed by the reunification of the formerly separate entities of East and West Germany. It is well acknowledged that the falling of the wall was widely unanticipated in Germany (Stefan Bach and Harold Trabold, 2000), and thus it provides some useful exogenous variation with which we can more firmly establish causality in empirical analyses. In this paper, we aim to contribute to the growing economics literature on the determinants of life satisfaction (or happiness) by investigating how life satisfaction in East Germany changed over the decade following reunification. We are particularly interested inidentifying the contribution that the substantial increase in real household income in East Germany in the post-reunification years (i.e., around 60 percent between 1990 and 2001) made to reported levels of life satisfaction.