Institutions and Life Satisfaction

Living reference work entry


The degree to which people are satisfied with their lives is affected by many factors. This chapter surveys studies that document the influence of one such factor – formal institutions (i.e., written rules). Such rules, typically laws that enable and constrain political, legal, and economic decision-making, have the potential to affect how satisfied people are with their lives in at least two ways. First, there can be direct effects in that rules either enable certain individual choices or constitute constraints on the individual’s choice set; furthermore, such effects can be of a “symbolic” kind: certain types of rules are valued for their character. Second, there can be indirect effects in that rules shape the overall character of society, through the actions that are, and that are not, taken by people. This character – in the form of various outcomes of the rules that function as mediators – can influence individual life satisfaction within a society. The present review of the literature identifies empirical studies that link formal political, legal, and economic institutions to subjective well-being – primarily in the form of life satisfaction, but in some cases in the form of happiness. Some main results can be summarized as follows: Political institutions are related to life satisfaction through democracy and direct democracy; legal institutions seem able to boost life satisfaction by being effective, fair, and inclusive; and economic institutions that strengthen the role of markets in society are positively related to life satisfaction (as are some “complementary” regulations of employment and welfare-state policies). In all, it is demonstrated that the incorporation of formal institutions into studies of life satisfaction is essential, and that careful design, or reforms, of institutions has the potential to increase – or decrease – life satisfaction in society.



Financial support from Jan Wallanders and Tom Hedelius stiftelse (grants P18-0162, P19-0180), Johan och Jakob Söderbergs stiftelse (grants 47/19, FA20-0001) and the Czech Science Foundation (GA ČR) (grant 19-03102S) is gratefully acknowledged.


  1. Acemoglu D, Robinson JA (2000) Why did the West extend the franchise? Democracy, inequality, and growth in historical perspective. Q J Econ 115:1167–1199. Scholar
  2. Acemoglu D, Johnson S, Robinson JA (2005) Institutions as a fundamental cause of economic growth. In: Aghion P, Durlauf SN (eds) Handbook of economic growth, vol 1A. Elsevier, Amsterdam, pp 385–472. Scholar
  3. Altman D, Flavin P, Radcliff B (2017) Democratic institutions and subjective well-being. Polit Stud-Lond 65:685–704. Scholar
  4. Başlevent C, Kirmanoğlu H (2017) Gender inequality in Europe and the life satisfaction of working and non-working women. J Happiness Stud 18:107–124. Scholar
  5. Bavetta S, Navarra P (2011) Economic freedom and the pursuit of happiness. In: Miller T, Holmes KR (eds) 2011 index of economic freedom. Heritage Foundation, Washington, DC, pp 61–68Google Scholar
  6. Bavetta S, Maimone D, Patti A, Miller P, Navarra P (2017) More choice for better choosers: political freedom, autonomy and happiness. Polit Stud-Lond 65:316–338. Scholar
  7. Bennett DL, Nikolaev B (2016) Factor endowments, the rule of law and structural inequality. J Inst Econ 12:773–795. Scholar
  8. Bennett DL, Nikolaev B (2017a) On the ambiguous economic freedom–inequality relationship. Empir Econ 53:717–754. Scholar
  9. Bennett DL, Nikolaev B (2017b) Economic freedom and happiness inequality: friends or foes? Contemp Econ Policy 35:373–391. Scholar
  10. Bennett DL, Nikolaev B, Aidt TS (2016) Institutions and well-being. Eur J Polit Econ 45:1–10. Scholar
  11. Berggren N (1999) Economic freedom and equality: friends or foes? Public Choice 100:203–223. Scholar
  12. Berggren N, Bjørnskov C, Nilsson T (2017) What aspects of society matter for the quality of life of a minority? Global evidence from the new gay happiness index. Soc Indic Res 132:1163–1192. Scholar
  13. Berggren N, Bjørnskov C, Nilsson T (2018) Do equal rights for a minority affect general life satisfaction? J Happiness Stud 19:1465–1483. Scholar
  14. Bjørnskov C (2003) The happy few: cross-country evidence on social capital and life satisfaction. Kyklos 56:3–16. Scholar
  15. Bjørnskov C (2010) How comparable are the Gallup World Poll life satisfaction data? J Happiness Stud 11:41–60. Scholar
  16. Bjørnskov C (2014) Do economic reforms alleviate subjective well-being losses of economic crises? J Happiness Stud 15:163–182. Scholar
  17. Bjørnskov C, Rode M (2020) Regime types and regime change: a new dataset on democracy, coups and political institutions. Rev Int Organ 15:531–551. Scholar
  18. Bjørnskov C, Tsai MC (2015) How do institutions affect happiness and misery? A tale of two tails. Comp Sociol 14:353–385. Scholar
  19. Bjørnskov C, Dreher A, Fischer JAV (2007) The bigger the better? Evidence of the effect of government size on life satisfaction around the world. Public Choice 130:267–292. Scholar
  20. Bjørnskov C, Dreher A, Fischer JAV (2008a) Cross-country determinants of life satisfaction: exploring different determinants across groups in society. Soc Choice Welf 30:119–173. Scholar
  21. Bjørnskov C, Dreher A, Fischer JAV (2008b) On decentralization and life satisfaction. Econ Lett 99:147–151. Scholar
  22. Bjørnskov C, Dreher A, Fischer JAV (2010) Formal institutions and subjective well-being: revisiting the cross-country evidence. Eur J Polit Econ 26:419–430. Scholar
  23. Boarini R, Comola M, de Keulenaer F, Manchin R, Smith C (2013) Can governments boost people’s sense of well-being? The impact of selected labor market and health policies on life satisfaction. Soc Indic Res 114:105–120. Scholar
  24. Boyd-Swan C, Herbst CM, Ifcher J, Zarghamee H (2016) The earned income tax credit, mental health and happiness. J Econ Behav Organ 126:18–38. Scholar
  25. Brulé G, Veenhoven R (2014) Freedom and happiness in nations: why the Finns are happier than the French. Psychol Well-Being 4:17. Scholar
  26. Carr E, Chung H (2014) Employment insecurity and life satisfaction: the moderating influence of labor market policies across Europe. J Eur Soc Policy 24:383–389. Scholar
  27. Cassar A, d’Adda G, Grosjean P (2014) Institutional quality, culture and norms of cooperation: evidence from behavioral field experiments. J Law Econ 57:821–863. Scholar
  28. Cheng Z, King SP, Smyth R, Wang H (2016) Housing property rights and subjective wellbeing in urban China. Eur J Polit Econ 45:160–174. Scholar
  29. Diaz-Serrano L, Rodríguez-Pose A (2012) Decentralization, subjective well-being and the perception of institutions. Kyklos 65:179–193. Scholar
  30. Diener E, Oishi S, Lucas R (2011) Subjective well-being: the science of happiness and life satisfaction. In: Snyder CR, Lopez SJ (eds) The Oxford handbook of positive psychology. Oxford University Press, Oxford, pp 187–194Google Scholar
  31. Diener E, Inglehart R, Tay L (2013) Theory and validity of life satisfaction scales. Soc Indic Res 112:497–527. Scholar
  32. Dluhosch B (2020) The gender gap in globalization and well-being. Appl Res Qual Life. ( forthcoming)
  33. Dluhosch B, Horgos D (2013) Trading up the happiness ladder. Soc Indic Res 113:973–990. Scholar
  34. Dolan P, Peasgood T, White M (2008) Do we really know what makes us happy? A review of the economic literature on the factors associated with subjective well-being. J Econ Psychol 29:94–122. Scholar
  35. Dorn D, Fischer JAV, Kirchgässner G, Sousa-Poza A (2007) Is it culture or democracy? The impact of democracy and culture on happiness. Soc Indic Res 82:505–526. Scholar
  36. Dorn D, Fischer JAV, Kirchgässner G, Sousa-Poza A (2008) Direct democracy and life satisfaction revisited: new evidence for Switzerland. J Happiness Stud 9:227–255. Scholar
  37. Evrensel AY (2015) Happiness, economic freedom and culture. Appl Econ Lett 22:683–687. Scholar
  38. Evrensel AY (2018) Contradictory effects of religiosity on subjective well-being. Cogent Econ Finance 6:1525115. Scholar
  39. Fereidouni HG, Najdi Y, Amiri RE (2013) Do governance factors matter for happiness in the MENA region? Int J Soc Econ 40:1028–1040. Scholar
  40. Fernández R (2011) Does culture matter? In: Benhabib J, Bisin A, Jackson MO (eds) Handbook of social economics. Elsevier, Amsterdam, pp 481–510Google Scholar
  41. Flavin P, Pacek AC, Radcliff B (2014) Assessing the impact of the size and scope of government on human well-being. Soc Forces 92:1241–1258. Scholar
  42. Flavin P, Pacek AC, Radcliff B (2019) Labor market regulation and subjective well-being in low-income countries. Eur J Polit Res 58:1088–1107. Scholar
  43. Frey BS, Stutzer A (2000a) Happiness prospers in democracy. J Happiness Stud 1:79–102. Scholar
  44. Frey BS, Stutzer A (2000b) Happiness, economy and institutions. Econ J 110:918–938. Scholar
  45. Frey BS, Stutzer A (2000c) Maximizing happiness? Ger Econ Rev 1:145–167. Scholar
  46. Frey BS, Stutzer A (2001) Constitution: popular referenda and federalism. In: Frey NS, Stutzer A (eds) Happiness and economics: how the economy and institutions affect human well-being. Princeton University Press, Princeton, pp 133–152Google Scholar
  47. Frey BS, Stutzer A (2005) Beyond outcomes: measuring procedural utility. Oxf Econ Pap 57:90–111. Scholar
  48. Frey BS, Stutzer A (2010) Happiness and public choice. Public Choice 144:557–573. Scholar
  49. Frey BS, Stutzer A (2012) The use of happiness research for public policy. Soc Choice Welf 38:659–674. Scholar
  50. Frey BS, Kucher M, Stutzer A (2001) Outcome, process and power in direct democracy – new econometric results. Public Choice 107:271–293. Scholar
  51. Frey BS, Benz M, Stutzer A (2004) Introducing procedural utility: not only what, but also how matters. J Inst Theor Econ 160:377–401. Scholar
  52. Frijters P, Haisken-DeNew JP, Shields MA (2004) Investigating the patterns and determinants of life satisfaction in Germany following reunification. J Hum Resour 39:649–674. Scholar
  53. Gehring K (2013) Who benefits from economic freedom? Unraveling the effect of economic freedom on subjective well-being. World Dev 50:74–90. Scholar
  54. Graafland J (2020) When does economic freedom promote well-being? On the moderating role of long-term orientation. Soc Indic Res. (forthcoming)
  55. Graafland J, Compen B (2015) Economic freedom and life satisfaction: mediation by income per capita and generalized trust. J Happiness Stud 16:789–810. Scholar
  56. Graafland J, Lous B (2018) Economic freedom, income inequality and life satisfaction in OECD countries. J Happiness Stud 19:2071–2093. Scholar
  57. Gropper DM, Lawson RA, Thorne JT Jr (2013) Economic freedom and happiness. Cato J 31:237–255Google Scholar
  58. Gruber JH, Mullainathan S (2005) Do cigarette taxes make smokers happier? BE J Econ Anal Policy 5:1. Scholar
  59. Gwartney JD, Lawson RA, Hall JC, Murphy R (2019) Economic freedom of the world: 2019 annual report. The Fraser Institute, VancouverGoogle Scholar
  60. Hall JC, Humphreys BR, Ruseski JE (2018) Economic freedom, race and health disparities: evidence from US states. Public Finance Rev 46:276–300. Scholar
  61. Hamermesh DS, Kawaguchi D, Lee J (2017) Does labor legislation benefit workers? Well-being after an hours reduction. J Jpn Int Econ 44:1–12. Scholar
  62. Hayo B (2007) Happiness in transition: an empirical study on Eastern Europe. Econ Syst 31:204–221. Scholar
  63. Helliwell JF, Huang H (2008) How’s your government? International evidence linking good government and well-being. Br J Polit Sci 38:595–616. Scholar
  64. Helliwell JF, Huang H, Grover S, Wang S (2018) Empirical linkages between good governance and national well-being. J Comp Econ 46:1332–1346. Scholar
  65. Helliwell JF, Layard R, Sachs JD (2019) World happiness report 2019. Sustainable Development Solutions Network, New YorkGoogle Scholar
  66. Hessami Z (2010) The size and composition of government spending in Europe and its impact on well-being. Kyklos 63:346–382. Scholar
  67. Hessami Z (2011) Globalization’s winners and losers – evidence from life satisfaction data, 1975–2001. Econ Lett 112:250–253. Scholar
  68. Hevenstone D (2011) Flexicurity, happiness and satisfaction. Int J Sociol 41:7–45. Scholar
  69. Inglehart R (2008) Changing values among western publics from 1970 to 2006. West Eur Polit 31:130–146. Scholar
  70. Inglehart R (2009) Democracy and happiness: what causes what? In: Dutt AK, Radcliff B (eds) Happiness, economics and politics: towards a multi-disciplinary approach. Edward Elgar, Cheltenham, pp 256–270. Scholar
  71. Inglehart R, Klingemann HD (2000) Genes, culture, democracy and happiness. In: Diener E, Suh EM (eds) Culture and subjective well-being. MIT Press, Cambridge, pp 165–184Google Scholar
  72. Inglehart R, Foa R, Peterson C, Welzel C (2008) Development, freedom and rising happiness: a global perspective (1981–2007). Perspect Psychol Sci 3:264–285. Scholar
  73. Jackson J (2017) Free to be happy: economic freedom and happiness in US states. J Happiness Stud 18:1207–1229. Scholar
  74. Kahneman D, Krueger AB (2006) Developments in the measurement of subjective well-being. J Econ Perspect 20:3–24. Scholar
  75. Kim S, Kim D (2012) Does government make people happy? Exploring new research directions for government’s roles in happiness. J Happiness Stud 13:875–899. Scholar
  76. Knoll B, Pitlik H (2016) Who benefits from big government? A life satisfaction approach. Empirica 43:533–557. Scholar
  77. Knoll B, Pitlik H, Rode M (2013) A note on the impact of economic regulation on life satisfaction. Appl Econ Lett 20:916–920. Scholar
  78. Lin CHA, Lahiri S, Hsu CP (2017) Happiness and globalization: a spatial econometric approach. J Happiness Stud 18:1841–1857. Scholar
  79. Luechinger S, Meier S, Stutzer A (2008) Bureaucratic rents and life satisfaction. J Law Econ Org 24:476–488. Scholar
  80. Luecke C, Knabe A (2020) How much does others’ protection matter? Employment protection, future labour market prospects and well-being. Oxf Econ Pap. (forthcoming)
  81. Nadeem M, Jun Y, Tian Y, Hussain Z, Yousuf M (2019) Happiness flight with institutional capabilities: evidence of the effects of economic freedom on subjective well-being in developing countries. J Appl Econ Sci 3:907–922. Scholar
  82. Nikolaev B (2014) Economic freedom and quality of life: evidence from the OECD’s Your Better Life Index. J Priv Enterp 29:61–96Google Scholar
  83. Nikolaev B (2015) Economic freedom and subjective well-being. In: Cebula RJ, Hall J, Mixon FG Jr, Payne JE (eds) Economic behavior, economic freedom and entrepreneurship. Edward Elgar, Cheltenham, pp 178–192. Scholar
  84. Nikolaev B, Bennett DL (2016) Give me liberty and give me control: economic freedom, control perceptions and the paradox of choice. Eur J Polit Econ 45:39–52. Scholar
  85. Nikolaev B, Bennett DL (2017) Economic freedom and emotional well-being. J Reg Anal Policy 47:88–99. Scholar
  86. Nikolova M (2016) Minding the happiness gap: political institutions and perceived quality of life in transition. Eur J Polit Econ 45:129–148. Scholar
  87. North DC (1991) Institutions. J Econ Perspect 5:97–112. Scholar
  88. North DC (2005) Understanding the process of economic change. Princeton University Press, PrincetonCrossRefGoogle Scholar
  89. O’Connor KJ (2017) Happiness and welfare-state policy around the world. Rev Behav Econ 4:397–420. Scholar
  90. Obydenkova AV, Salahodjaev R (2017) Government size, intelligence and life satisfaction. Intelligence 61:85–91. Scholar
  91. Ochsen C, Welsch H (2012) Who benefits from labor-market institutions? Evidence from surveys of life satisfaction. J Econ Psychol 33:112–124. Scholar
  92. Odermatt R, Stutzer A (2015) Smoking bans, cigarette prices and life satisfaction. J Health Econ 44:176–194. Scholar
  93. Oishi S, Schimmack U, Diener E (2012) Progressive taxation and the subjective well-being of nations. Psychol Sci 23:86–92. Scholar
  94. Oishi S, Kushlev K, Schimmack U (2018) Progressive taxation, income inequality and happiness. Am Psychol 73:157–168. Scholar
  95. Orviska M, Caplanova A, Hudson J (2014) The impact of democracy on well-being. Soc Indic Res 115:493–508. Scholar
  96. Ott J (2010a) Good governance and happiness in nations: technical quality precedes democracy and quality beats size. J Happiness Stud 11:353–368.
  97. Ott J (2010b) Greater happiness for a greater number: some non-controversial options for governments. J Happiness Stud 11:631–647.
  98. Ott J (2011) Government and happiness in 130 nations: good governance fosters higher level and more equality of happiness. Soc Indic Res 102:3–22. Scholar
  99. Ovaska T, Takashima R (2006) Economic policy and the level of self-perceived well-being: an international comparison. J Socio-Econ 35:308–325. Scholar
  100. Ovaska T, Takashima R (2010) Does a rising tide lift all the boats? Explaining the national inequality of happiness. J Econ Issues 44:205–223. Scholar
  101. Owen AL, Videras J, Willemsen C (2008) Democracy, participation and life satisfaction. Soc Sci Q 89:987–1005. Scholar
  102. Pacek AC, Radcliff B (2008) Welfare policy and subjective well-being across nations: an individual-level assessment. Soc Indic Res 89:179–191. Scholar
  103. Pacek AC, Radcliff B, Brockway M (2019) Well-being and the democratic state: how the public sector promotes human happiness. Soc Indic Res 143:1147–1159. Scholar
  104. Perovic LM, Golem S (2010) Investigating macroeconomic determinants of happiness in transition countries: how important is government expenditure? East Eur Econ 48:59–75. Scholar
  105. Pezzini S (2005) The effect of women’s rights on women’s welfare: evidence from a natural experiment. Econ J 115:C208–C227. Scholar
  106. Pitlik H, Rode M (2016) Free to choose? Economic freedom, relative income and life control perceptions. Int J Well-Being 6:81–100. Scholar
  107. Pryor R (2009) Happiness and economic systems. Comp Econ Stud 51:367–383. Scholar
  108. Radcliff B (2013) Labor unions and economic regulation. In: Radcliff B (ed) The political economy of human happiness: how voters’ choices determine the quality of life. Cambridge University Press, Cambridge, pp 142–158. Scholar
  109. Radcliff B, Shufeldt G (2016) Direct democracy and subjective well-being: the initiative and life satisfaction in the American states. Soc Indic Res 128:1405–1423. Scholar
  110. Ram R (2009) Government spending and happiness of the population: additional evidence from large cross-country samples. Public Choice 138:483–490. Scholar
  111. Rode M (2013) Do good institutions make citizens happy, or do happy citizens build better institutions? J Happiness Stud 14:1479–1505. Scholar
  112. Rode M, Knoll B, Pitlik H (2013) Economic freedom, democracy and life satisfaction. In: Gwartney JD, Lawson RA, Hall JC (eds) Economic freedom of the world: 2013 annual report. Fraser Institute, Vancouver, pp 215–233Google Scholar
  113. Rodríguez-Pose A, Maslauskaite K (2012) Can policy make us happier? Individual characteristics, socio-economic factors and life satisfaction in Central and Eastern Europe. Camb J Reg Econ Soc 5:77–96. Scholar
  114. Rodrik D (2015) Economics rules: the rights and wrongs of the dismal science. WW Norton, New YorkGoogle Scholar
  115. Roland G (2004) Understanding institutional change: fast-moving and slow-moving institutions. Stud Comp Int Dev 38:109–131. Scholar
  116. Ruseski JE, Maresova K (2014) Economic freedom, sport policy and individual participation in physical activity: an international comparison. Contemp Econ Policy 32:42–55. Scholar
  117. Schalembier B (2016) The impact of exposure to other countries on life satisfaction: an international application of the relative income hypothesis. Soc Indic Res 128:221–239. Scholar
  118. Smith A (1776/1982) The wealth of nations. Penguin Classics, LondonGoogle Scholar
  119. Spruk R, Kešeljević A (2016) Institutional origins of subjective well-being: estimating the effects of economic freedom on national happiness. J Happiness Stud 17:659–712. Scholar
  120. Stadelmann-Steffen I, Vatter A (2012) Does satisfaction with democracy really increase happiness? Direct democracy and individual satisfaction in Switzerland. Polit Behav 34:535–559. Scholar
  121. Stutzer A, Frey BS (2006) Political participation and procedural utility: an empirical study. Eur J Polit Res 45:391–418. Scholar
  122. Sujarwoto S, Tampubolon G (2015) Decentralisation and citizen happiness: a multilevel analysis of self-rated happiness in Indonesia. J Happiness Stud 16:455–475. Scholar
  123. Veenhoven R (2000) Freedom and happiness: a comparative study in 46 nations in the early 1990s. In: Diener E, Suh EM (eds) Culture and subjective well-being. MIT Press, Cambridge, pp 257–288Google Scholar
  124. Welsch H (2003) Freedom and rationality as predictors of cross-national happiness patterns: the role of income as a mediating variable. J Happiness Stud 4:295–321. Scholar
  125. Williamson OE (2000) The new institutional economics: taking stock, looking ahead. J Econ Lit 38:595–613. Scholar
  126. Wolfe MT, Patel PC (2018) Satisfaction guaranteed? Life satisfaction, institutional factors and self-employment. J Bus Ventur 9:45–52. Scholar

Authors and Affiliations

  1. 1.Research Institute of Industrial Economics (IFN)StockholmSweden
  2. 2.Department of Economics (KEKE NF)University of Economics in PraguePrague 3Czechia
  3. 3.Department of EconomicsAarhus UniversityAarhus VDenmark

Section editors and affiliations

  • Milena Nikolova

There are no affiliations available

Personalised recommendations