the Human Development Report of 1990 of the United Nations Development Program (Hopkins, 1991), and the following UN focus on the Millennium Development Goals and later the Sustainable Development-Goals (MDGs and SDGs). More recent examples are the Stiglitz-Sen-Fitoussi (2009) commission report on the measurement of economic performance and social progress; the OECD’s “better life index”, or its attention to “inclusive growth”; the World Bank’s publications on rethinking the social contract (Bussolo et al., 2018; Devarajan and Mottaghi, 2015); and the ILO’s agenda for promoting “decent jobs”, and the three volumes of the International Panel on Social Progress . All these initiatives go in the direction of assessing aggregate social progress beyond the standard indicator of GDP growth.

Aside from their growing appeal with policy makers, these approaches based on subjective assessments have also been criticized. Two related strands of criticism are most frequent. The first points out that unobserved factors, such as personality traits, may be important determinants of subjective well-being (Ferrer-i-Carbonell, 2005; Lucas and Diener, 2008). Some go even further and claim that subjective assessments are unreliable because they are influenced by trivial factors such as weather, other short-term events, or the sequencing of the questions in the survey (Kahneman and Krueger, 2006). Deaton (2012) argues that “the SWB [subjective well-being] measures do a better job of monitoring short-run levels of anxiety than the medium-term evolution of the economy” (p. 1). The second frequent criticism underlines the difficulty in establishing causality, especially in cross-sections. Happiness, or subjective well-being, is such an extensive concept that it is difficult to identify whether a variable is causing it or whether it is the other way around (MacKerron, 2012, and references cited therein). Natural experiments which provide exogenous shocks (such as lottery wins in Gardner and Oswald, 2007 or political shifts in Frijters et al., 2004) as well as the availability of panel data may address some of these issues.

This paper does not attempt to settle this debate by providing arguments for one or the other position. We adopt the same view as Ravallion and Lokshin (2002), i.e. that one can learn quite a bit from comparing objective versus subjective data on welfare, and that they should be considered complements, rather than substitutes. In addition, rather than adding to the macro-level research which discusses whether GDP or national happiness should be used as the aggregate index of social progress, our paper contributes to the micro-level research which focusses on distributional issues, such as self-assessed poverty and inequality, or determinants of individuals’ well-being.

Our results extend previous findings of Cojocaru and Diagne (2015) and Ravallion and Lokshin (2002). In more detail, instead of starting, as in these papers, by assuming that the answers to the Cantril’s ladder questions represent a subjective economic welfare variable and then analyzing its reliability, consistency and determinants, our paper’s final objective it to show that this is indeed a valid interpretation. Our paper arrives at 3