Inflated Expectations and Natural Resource Booms: Evidence from Kazakhstan

Apr 2013 | 109

We use the exogenous variation in oil prices to study the negative effect of income aspirations on households' satisfaction with income. To evaluate the effect we use data on reported satisfaction with income from Kazakhstan's Household Budget Survey - a

quarterly, unbalanced panel of households covering the period 2001-2005. Our results suggest that a 20% increase in the oil price decreased households' satisfaction with income by half a standard deviation within a year. We argue that the drop in satisfaction is due to peoples' inflated expectations. This result highlights the importance of managing expectations in a rapidly changing economic environment.

JEL Codes: Q33, Q34, I31, D03

Keywords: Resource Boom, Conflict, Aspirations, Income Satisfaction

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