1. 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

2. 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:

3. 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.

4. 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.

5. 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.

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

7. 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:

8. The results - general 0.00079* Inflation (0.095) -0.0014 Unemployment
Education
No formal education
Reference
Incomplete primary school
(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
(0.522)
Self employed
(0.690)
Unemployed
***
Out of the labour force (OLF) *
(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 *
(0.095)
Unemployment
(0.483)
GDP per capita
-5.49e-06
(0.202)
General government expenditure
0.0093**
(0.013)
General government expenditure squared **
(0.021)
Demographic variables
Male dummy
***
(0.002)
Age
***
(0.000)
Age squared
0.0005***
Marital status
Married
Reference
Divorced
***
Separated
***
Widowed
***
Single
***

9. Marginal effect on macroeconomic variables in different combinations1 2 3
Inflation
(0.279)
Unemployment
(0.852)
GDP per capita
-1.45e-07
(0.971)
General government expenditure
0.0105***
(0.007) **
(0.027) **
General government expenditure squared **
(0.018) *
(0.063)
(0.058)
Socio-demographic variables 
Country dummies
Wave dummies

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

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