Download How Important is Government Expenditure?

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:
H it    X it   it
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: HAPPYijt  Intercept  X ijt  MACRO jt    i  t   ijt
GENDER




AGE


 MARITAL STATUS 
X 

EMPLOYMENT
STATUS




EDUCATION


INCOME SCALE


 INFLATION 
UNEMPLOYMENT 

MACRO  
 GDP per capita 


GEN
GOVT
EXP


Education
No formal education
The results - general
Variable
Inflation
Marginal effects
0.00079*
(0.095)
Unemployment
-0.0014
(0.483)
GDP per capita
-5.49e-06
(0.202)
General government expenditure
General government expenditure squared
0.0093**
(0.013)
-0.00021**
(0.021)
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
Reference
Part time
-0.0042
(0.522)
Self employed
-0.0026
(0.690)
-0.0399***
(0.000)
Demographic variables
Male dummy
-0.0082***
(0.002)
Unemployed
Age
-0.0069***
(0.000)
Out of the labour force (OLF)
Age squared
0.0005***
(0.000)
Marital status
Reference
-0.0083*
(0.056)
Scale of income
1 or 2
Reference
3 or 4
0.0063
(0.320)
Married
Reference
Divorced
-0.0540***
(0.000)
5 or 6
0.0158
(0.127)
Separated
-0.0492***
(0.000)
7 or 8
0.021
(0.109)
Widowed
-0.0475***
(0.000)
9 or 10
0.039**
(0.033)
Single
-0.0332***
(0.000)
Country dummies

Wave dummies

Marginal effect on macroeconomic variables
in different combinations
Variable
1
Inflation
0.00048
(0.279)
2
3
-0.00036
(0.852)
Unemployment
-1.45e-07
(0.971)
GDP per capita
General government expenditure
0.0105***
(0.007)
0.01044**
(0.027)
0.01051**
(0.027)
General government expenditure squared
-0.00023**
(0.018)
-0.00022*
(0.063)
-0.00022*
(0.058)
Socio-demographic variables



Country dummies



Wave dummies



Marginal effects for different values of
macro and micro variables
Variable
Macro variables
at sample
mean
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)
-0.00021**
(0.021)
-0.00011**
(0.009)
-0.00062**
(0.016)
-0.00001**
(0.015)
Socio-demographic
variables




Country dummies




Wave dummies




General government
expenditure squared
Macro variables
at 2007
averages
Successful woman +
2007 averages
Unsuccessful man
+ 2007 averages
Conclusion


Government expenditure significantly and
non-linearly influences happiness in
transition countries;
Successful women vs. unsuccessful men;