Working Paper: NBER ID: w31977
Authors: Johannes Haushofer; Daniel Salicath
Abstract: In recent years, the psychological causes and consequences of poverty have received renewed attention from scientists and policymakers. In this review, we summarize new developments in this literature. First, we discuss advances in our understanding of the relationship between income and psychological well-being. There is a robust positive relationship between the two, both within and across countries, and in correlational and causal analyses. Second, we summarize recent work on the impact of “scarcity” and stress on economic preferences and decision-making. Our view of this literature is that the evidence is relatively weak. Third, we summarize evidence on the impact of psychological interventions on economic outcomes. Light-touch psychological interventions, such as videos that aim to raise aspirations, have shown some promise in encouraging investment and improving economic well-being. Similarly, psychotherapy and pharmacological mental health treatments have positive effects on economic outcomes. Relative to the effects of cash transfers, these impacts are small in absolute terms and large in per-dollar terms. We conclude by discussing whether a psychological poverty trap is plausible.
Keywords: Poverty; Psychology; Economic Outcomes; Wellbeing; Interventions
JEL Codes: D91; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| psychological wellbeing (I31) | economic outcomes (F61) |
| poverty (I32) | happiness (I31) |
| poverty (I32) | life satisfaction (I31) |
| happiness (I31) | economic disadvantage (I32) |
| psychological mechanisms (D91) | economic outcomes (F61) |
| income (E25) | psychological wellbeing (I31) |
| cash transfers (F24) | psychological wellbeing (I31) |