Petrol prices and subjective wellbeing

We examine the effect of petrol prices on subjective wellbeing (SWB) using household panel data. To do so, we use 17 waves of the Household, Income and Labour Dynamics in Australia (HILDA) survey. Based on our preferred instrumental variable estimates, we find that a standard deviation increase in petrol prices leads to a decline of 0.0157–0.0245 standard deviations in SWB. The finding that increases in petrol prices significantly lower SWB is robust to alternative measures of wellbeing and alternative ways of addressing endogeneity, as well as employing different sources of fuel price data measured at a range of frequencies. We also examine the channels through which petrol prices influence SWB and find that maintaining social networks is an important way through which petrol prices influence SWB.