Rich people are happier than poorer people on average, and richer countries are happier than poorer countries. And yet growing national wealth is not always accompanied by growing national happiness. This is the famous Easterlin Paradox, named after economist Richard Easterlin, who first observed a puzzling phenomenon. Between 1946 and 1970, the U.S. witnessed remarkable economic expansion. And yet surveys failed to show any upsurge in happiness throughout this period of post-war boom.

The publication of these findings created some controversy. Some scholars rejected the paradox and pointed to countries in which economic growth was accompanied by growing happiness. Other scholars, Easterlin included, came up with further examples of the paradox — countries in which economic growth was accompanied with flat or downward-looking trends for happiness. The puzzle is still unresolved: We don’t know when and why economic growth does increase happiness and when it doesn’t.

Shigehiro Oishi and I sought to test whether income inequality can partly account for the conflicting findings. As an economy grows, that growth is typically not shared equally. Unless redistributive mechanisms stand in the way, the wealthy see a disproportionate increase in per capita income – or in lay terms, the rich get richer, and inequality widens.

There are multiple reasons to expect such increases in income inequality to cancel out and even reverse some of the positive effects of economic growth on well-being. First, inequality has been linked to lower levels of trust in others and a reduced sense of fairness; trust and fairness are both predictive of happiness. Second, income inequality is linked with fewer economic opportunities, less social mobility, poorer overall health, and higher levels of crime. All of these are causes for stress and anxiety, detracting from a society’s overall sense of safety, security, and well-being. Thus instances of the Easterlin Paradox may be more likely when economic growth is accompanied by growing income inequality.

To test this idea, we looked into patterns of per capita income, inequality, and happiness in two datasets containing data from 34 countries. The first set was composed of 16 developed economies such as France, Finland, Spain and Japan. We found the expected pattern here: When income inequality in a country was low, on average an increase in GDP per capita was associated with an increase in life satisfaction. When income inequality was high, an increase in GDP per capita was virtually unrelated to life satisfaction. For this set of countries, once we statistically controlled the effect of income inequality, economic growth was typically associated with increased life satisfaction.

The data for the second set of analyses were taken from Latinobarometer, a comprehensive survey of 18 Latin American countries such as Argentina, Brazil, and Colombia. Here again, we found evidence that levels of inequality could explain the relationship between economic growth and happiness. But there was a wrinkle: For this set of countries, economic growth was associated with a negative overall effect on happiness. Even when inequality was low, GDP per capita increase was associated with a small decrease in life satisfaction. (It was associated with a larger decrease in life satisfaction when income inequality was high.) In other words, income growth was on average detrimental to happiness in these countries in the studied period, with inequality further aggravating the negative effect of economic growth on happiness. What we have here is a case of the Easterlin Paradox.

Our data made two things clear: First, in both sets of countries, inequality was associated with lower levels of happiness after statistically controlling for GDP per capita. In other words, inequality is bad for happiness—a finding that has been shown multiple times now. Second, inequality mitigates the positive effect of economic development on happiness. For the developed set of countries, the positive relationship between income growth and happiness disappeared with rising inequality. For the Latin American countries, the negative relationship between income growth and happiness got stronger with rising inequality.

Why did is the relationship between income growth and happiness different in the two sets of countries? It could be because the Latin American countries are on average poorer than the more advanced economies, or because they are much more unequal. Our data did not present unequivocal answers. What we can say for sure is that it’s a fallacy to equate GDP with well-being. It’s not a foregone conclusion that growing the economy will make for a happier people.