Income Improves Subjective Well-Being: Evidence from South Africa

This paper estimates the causal impact of income on life satisfaction for a broad sample of individuals in a developing country. Using a large and representative panel survey of South African residents, we find that receipt of the Older Person's Grant-a means-tested cash transfer that is given to residents age 60 and older regardless of labor force status-increases several household-level measures of economic well-being, resulting in a large and significant increase in subjective well-being. Specifically, the average 20% increase in per capita household income due to this grant increases life satisfaction by approximately 0.2 points, a large effect that extends to all members of the household. The discontinuity in the eligibility of the Older Person's Grant provides a reliable causal estimate of the effect of income on life satisfaction that is larger than ordinary least squares estimates.