Working paper 4/2019

Structural changes in economic growth and well-being. The case of Italy’s parabola

Maurizio Pugno
Università di Cassino e del Lazio Meridionale

Francesco Sarracino
Institut National de la Statistique et des Etudes Economiques du Grand-Duché du Luxembourg

November, 2019

Abstract: The controversies on the relationship (called ‘gradient’) between the long-run trends of GDP and subjective well-being oppose those who claim that the gradient is positive, to those who argue that it is nil. The possible existence of structural breaks of the gradient within the same country is a challenge to both views. By focusing on the case of Italy, we show that the long-run trends of GDP and of well-being turned from increasing to decreasing, and that the gradient exhibits a rise through two structural breaks. We adopt macro- and micro-economic approaches to explain why the gradient changes. We find evidence consistent with the ‘loss aversion’ hypothesis. In addition, the gradient changed because the erosion of trust in others, the increase of financial dissatisfaction and worsened health hinder well-being independently from income.

JEL codes: I31, O11, O12, O5

Keywords: life satisfaction, structural breaks, loss aversion

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