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Life Satisfaction and Preferences over Economic Growth and Institutional Quality

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Abstract

This paper demonstrates that institutional factors have differential impacts on subjective well-being of individuals in rich versus poor countries. A lower level of corruption, a more democratic government and better civil rights increase the well-being of individuals in rich countries, whereas an increase in per capita income has no impact. On the contrary, in poor countries the extent of corruption, democracy or civil rights has no influence on happiness, but an increase in per capita income impacts happiness positively. We provide evidence that this stark contrast may be due to the difference of preferences over economic growth and institutional factors.

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Notes

  1. Sacks, Stevenson and Wolfers (2010) show that average happiness is higher in countries with greater GDP per capita. Stevenson and Wolfers (2013)show that income increases improves life satisfaction without a satiation point.

  2. Previous research documents a positive relationship between economic growth and institutional quality (Rigobon and Rodrik 2005; Dollar and Kraay 2003; Acemoglu and Robinson 2000; Hall and Jones 1999), and between favorable institutional characteristics and life satisfaction (Frey and Stutzer 2000; Veenhoven 2000).

  3. http://www.worldvaluessurvey.org/World Values Survey provides a repeated cross-sectional data set.

  4. Only the countries for which the whole set of country-level variables could be obtained are used in estimation.

  5. We include countries that are available in the World Values Survey. List of the countries is available upon request.

  6. This measures the perceived corruption among public officials and politicians. We constructed our corruption measure by using the average of the country’s corruption score. Averaging does not constitute a problem, since it has been documented that corruption level in a country do not vary much over time (Mauro 1995 and Mocan 2008).

  7. This index measures the real-world rights and freedoms enjoyed by individuals. When the information is missing for a country, we used the index value for that country that is closest in time to the survey year of that country.

  8. Polity IV considers three elements: degree of competition in political participation, institutionalization of constraints on executive power and availability of civil liberties to citizens in daily life and political participation.

  9. The answer is chosen from a scale between one and ten, with “Most dissatisfied” (1) and “Most satisfied” (10).

  10. Individual-level variables considered are individual’s gender, age, income, education level, employment and marital status and the number of children the individual has. Country-level controls include the inflation rate and unemployment rates, carbon dioxide emission per capita and birth rate.

  11. Similar findings are obtained when other life satisfaction categories are considered. Probabilities of being in the higher (lower) life satisfaction categories are positively (negatively) correlated with increases per capita GDP.

  12. Deaton (2008) mentions that these countries are Moldova, Ukraine, Armenia, Belarus, Russia, Bulgaria, Latvia, Estonia, Azerbaijan, Bosnia and Herzegovina, Macedonia, Romania, Estonia, and Slovakia.

  13. Di Tella and MacCulloch (2010) estimate a model where the average happiness level in rich and poor countries is a function of past GDP per capita and the growth rate of GDP. They find that the average life satisfaction in a poor country is positively correlated with both past GDP per capita and GDP growth, but only the level of past GDP in a rich country impacts average happiness.

  14. Theses variables are constructed based on individual’s first and second choice on their country’s national goals. Respondents’ options were 1.A high level of economic growth, 2.Strong defense forces, 3.People have more say about how things are done, 4.Trying to make our cities and countryside more beautiful.

  15. When we use other categories as outcome variables, the marginal effects are not statistically significant.

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Authors and Affiliations

  1. Department of Economics, Auburn University, Auburn, AL, 36849, USA

    Duha T. Altindag

  2. Moody’s Analytics, New York, USA

    Junyue Xu

Authors
  1. Duha T. Altindag
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  2. Junyue Xu
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Correspondence to Duha T. Altindag.

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Appendix

Appendix

Table 5 Descriptions and Summary Statistics of All Variables
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Table 6 Marginal Effects of All Variables from Ordered Probit Estimation Dependent Variable: Satisfaction with Life
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Table 7 Effect of National Income and Institutions on Life Satisfaction in Poor vs. Rich Countries (Sensitivity to the cutoffs)
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Table 8 Effect of National Income and Institutions on Life Satisfaction in Poor vs. Rich Countries (Sensitivity to the countries in the sample)
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Altindag, D.T., Xu, J. Life Satisfaction and Preferences over Economic Growth and Institutional Quality. J Labor Res 38, 100–121 (2017). https://doi.org/10.1007/s12122-016-9235-2

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