Subjective Well-Being and Relative Income in Timor-Leste

Reported levels of well-being in wealthy nations have consistently shown a negative relationship with rising peer income. Some recent studies have suggested that this relationship may not hold for poor nations. This study investigates the relationship between subjective well-being and relative income using the 2001 World Bank Timor-Leste Living Standards Measurement Survey (TLSS). Models of SWB are estimated using OLS, Logit, and ordered Logit. Special attention is given to the selection and importance of reference groups. This study finds that changes in well-being are largely associated with perceived economic standing; not objective relative standing. These results suggest that happiness depends more on perceptions than on objective economic measures. Previous economic studies focusing on objective measures of relative standing are non-transferrable to the context of Timor-Leste. The use of perceived standing rather than a set reference group allows for a new perspective on subjective well-being and relative standing and indicates a need for further research