Investigating Macroeconomic Determinants of H appiness in Transition Countries: How Important is Government Expenditure?

1. Investigating Macroeconomic Determinants ofHappiness in Transition Countries: HowImportant 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 thatpeople would trade-off a 1 percentage point increase in the unemployment rate for a 1.7percentage point decrease in the inflation rate.

5. Literature review - government expenditure • Bjornskov et al. (2007):find anegative relationship between life satisfaction and government consumption spendingin a cross-section of 74, mainly developed, countries. • Kacapyr (2008):finds that the ratio ofgovernment spending to GDP isstatistically insignificant determinant of life satisfactionin the cross-country sample of 63 countries. • Ram (2009): finds apositive 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

9. Marginal effect on macroeconomic variables in different combinations

10. Marginal effects for different values of macro and micro variables

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