Inflation, Income, and Happiness: Contrasting Low-Income Developing Countries and Advanced Economies

Abstract

This study explores the relationship between inflation, income, and happiness in low-income developing countries and advanced economies, as classified by the IMF. Using panel data from 66 countries (2012–2022) and random effects models, the results show a negative impact of inflation on happiness in low-income countries, while advanced economies exhibit a positive relationship, where inflation reflects economic vitality. Income per capita significantly drives happiness in low-income countries but moderates inflation's effects in advanced economies. These findings underscore the distinct macroeconomic influences on happiness across these two economic classifications.