Investigating Macroeconomic Determinants of Happiness in Transition Countries: How Important is Government Expenditure? Lena Malešević Perović and Silvia.

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Presentation transcript:

Investigating Macroeconomic Determinants of Happiness in Transition Countries: How Important is Government Expenditure? Lena Malešević Perović and Silvia Golem University of Split, Faculty of Economics Dubrovnik, 24 June 2009

Introduction - happiness functions “Taking all things together, would you say you are: 1 – very happy, 2 – quite happy, 3 – not very happy, 4 – not at all happy”. General form:

Literature review - micro variables Happiness is higher for: women; married people; more educated people; those with higher income; the young and the old (U-shaped in age) and the self-employed.

Literature review - macro variables Rarely analysed; Usually included variables: inflation, GDP, unemployment, government expenditure; Di Tella et al. (2001) find that people would trade-off a 1 percentage point increase in the unemployment rate for a 1.7 percentage point decrease in the inflation rate.

Literature review - government expenditure Bjornskov et al. (2007): find a negative relationship between life satisfaction and government consumption spending in a cross-section of 74, mainly developed, countries. Kacapyr (2008): finds that the ratio of government spending to GDP is statistically insignificant determinant of life satisfaction in the cross-country sample of 63 countries. Ram (2009): finds a positive relationship between government consumption and happiness employing a broad(er) cross-country sample of transition, developed, African and Latin American countries.

Our approach to including macro variables in happiness equation Unemployment; Inflation; GDP; Government expenditure.

Empirical analysis Analysed countries: Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Macedonia (Central and Eastern European Countries). Micro data: World Values Survey - waves 3, 4 and 5; Macro data: World Development Indicators; The model we use is:

The results - general 0.00079* Inflation (0.095) -0.0014 Unemployment Education No formal education Reference Incomplete primary school -0.0046 (0.528) Complete primary school 0.0114 (0.317) Incomplete secondary school 0.0022** (0.050) Complete secondary school 0.0375*** (0.004) Some university-level education without degree 0.0635*** (0.000) University-level education with degree 0.0855*** (0.001) Employment status Full time Part time -0.0042 (0.522) Self employed -0.0026 (0.690) Unemployed -0.0399*** Out of the labour force (OLF) -0.0083* (0.056) Scale of income 1 or 2 3 or 4 0.0063 (0.320) 5 or 6 0.0158 (0.127) 7 or 8 0.021 (0.109) 9 or 10 0.039** (0.033) Country dummies  Wave dummies Variable Marginal effects Inflation 0.00079* (0.095) Unemployment -0.0014 (0.483) GDP per capita -5.49e-06 (0.202) General government expenditure 0.0093** (0.013) General government expenditure squared -0.00021** (0.021) Demographic variables Male dummy -0.0082*** (0.002) Age -0.0069*** (0.000) Age squared 0.0005*** Marital status Married Reference Divorced -0.0540*** Separated -0.0492*** Widowed -0.0475*** Single -0.0332***

Marginal effect on macroeconomic variables in different combinations 1 2 3 Inflation 0.00048 (0.279) Unemployment -0.00036 (0.852) GDP per capita -1.45e-07 (0.971) General government expenditure 0.0105*** (0.007) 0.01044** (0.027) 0.01051** General government expenditure squared -0.00023** (0.018) -0.00022* (0.063) (0.058) Socio-demographic variables  Country dummies Wave dummies

Marginal effects for different values of macro and micro variables Macro variables at sample mean Macro variables at 2007 averages Successful woman + 2007 averages Unsuccessful man + 2007 averages Inflation 0.00079* (0.095) 0.00041* (0.090) 0.00232* (0.075) 0.00006* (0.088) Unemployment -0.0014 (0.483) -0.00071 (0.500) -0.0041 (0.487) -0.00010 (0.495) GDP per capita -5.49e-06 (0.202) -2.84e-06 (0.149) -0.000016 (0.171) -4.19e-07 (0.136) General government expenditure 0.0093** (0.013) 0.0048*** (0.005) 0.0274** (0.011) 0.00071*** (0.008) General government expenditure squared -0.00021** (0.021) -0.00011** (0.009) -0.00062** (0.016) -0.00001** (0.015) Socio-demographic variables  Country dummies Wave dummies

Conclusion Government expenditure significantly and non-linearly influences happiness in transition countries; Successful women vs. unsuccessful men;