Wealth and Well-being: Lessons from Indian Debt Relief

Abstract:

A fundamental prediction of economic theory is that greater wealth causes greater well-being. This paper tests that prediction. It uses a natural experiment to estimate the causal effect of income on subjective well-being. Among a population of indebted farmers in rural India, the marginal effect of income on life satisfaction is found to be positive. However, the source of income appears to exert an important and independent effect. In this study the source is debt relief, which features a positive marginal effect but also a countervailing negative effect (perhaps due to stigma).