Formal institutions and subjective well-being: Revisiting the cross-country evidence

Abstract

A long tradition in economics explores the association between the quality of formal institutions and economic performance. The literature on the relationship between such institutions and happiness is, however, rather limited. In this paper, we revisit the findings from recent cross-country studies on the institutions-happiness association. Our findings suggest that the conclusions reached by previous studies are fairly sensitive to the specific measure of 'happiness' used. In addition, the results indicate that the welfare effects of policies may differ across phases of a country's economic development. This bears important policy implications which we discuss in the concluding section of the paper.

Happy PIIGS?

“…Diener et al (1995) provide evidence that, on average, people living in wealthy countries are happier than those living in poor ones, with an extensive study covering 55 economies. Furthermore, Bjornskov et al (2010) found that a high quality of governments lead to a greater level of happiness. Using data from the European Social Survey, Caporale et al (2009) examined the link between income and subjective wellbeing and found that, for the whole sample of 19 European countries, although income is positively correlated with both happiness and life satisfaction, the reference income exerts a negative effect on individual well-being.…”

“…In general, the focus is on the relationship between happiness and income. Without going into depth into the rich economic-psychological literature, these factors can be identified as working status (Frey and Stutzer 2001), social aspirations (Easterlin 2000), formal institutions (Bjornskov et al 2010), freedom (Veenhoven 2000), diminishing of altruism (Phelps 2001), inequality (Alesina et al 2004) and a decrease in associational life and social capital (Putnam 2000).…”

Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being

“…In the psychological literature, have found that a feeling of freedom is strongly related to higher SWB, and Verme (2009) suggested that self-perceived freedom and control are the strongest predictors of SWB. A number of studies have found a positive effect of decentralization ), a lower share of government spending as a percentage of GDP (Bjørnskov et al 2007), and the quality of institutions (Bjørnskov et al 2010). A study by Frey & Stutzer (2000) on political participation suggests that the freedom to decide independently and participate in decisions raises SWB regardless of the actual outcome.…”

“…This study uses the Economic Freedom of the World Index from the Fraser Institute as a proxy for EF, which it is the most widely used indicator in economic research for this purpose. Data from the World Value Surveys (WVS) are used to derive three distinct happiness measures, similar to Bjørnskov et al (2010); Helliwell (2006) and Ovaska & Takashima (2006). In total, the results from 86 countries between 1990 and 2005 are included in the panel data set.…”

Governance and Happiness: Evidence From Citizens’ Perception in Pakistan

“…The shape reveals that initial improvement will initially lead to more inequality in happiness but subsequently less inequality will follow. Bjørnskov et al (2010) claim that investing in a fair and efficient legal system would be one of the potential ways to augment national happiness levels and economic development in third world countries. Their results additionally speak that democratic political institutions are a source of happiness for middle and high income countries.…”