Happiness, Economy and Institutions

Abstract

Institutional factors in the form of direct democracy (via initiatives and referenda) and federal structure (local autonomy) systematically and sizeably raise self-reported individual well-being in a cross-regional econometric analysis. This positive effect can be attributed to political outcomes closer to voters' preferences, as well as to the procedural utility of political participation possibilities. Moreover, the results of previous microeconometric well-being functions for other countries are generally supported. Unemployment has a strongly depressing effect on happiness. A higher income level raises happiness, however, only to a small extent.To discover the sources of people's well-being is a major concern in the social sciences. Many inquiries have been undertaken to identify the determinants of individual happiness. This paper analyses data on reported subjective wellbeing in order to directly assess the role of democratic and federal institutions on people's satisfaction with life. Thus, a new set of determinants is considered, which expands previous research results showing the effects on happiness of individual income and unemployment, as well as of aggregate unemployment, in¯ation and income growth (see Oswald, (1997) for a survey). 1 We argue that institutional conditions with regard to the extent and form of democracy have systematic and sizeable effects on individual well-being, in addition to demographic and economic factors. Using recent interview data from 6,000 residents of Switzerland, we show that individuals are ceteris paribus happier, the better developed the institutions of direct democracy are in their area of residence. This also applies to a second institution, the degree of government decentralisation (federalism). Finally, we are able to support some of the earlier results for other countries and periods with new data also based on a survey with a large sample size. In particular, we ®nd that the unemployed are much less happy than employed persons, and that a higher household income level only raises happiness to a small extent.

Does Satisfaction with Democracy Really Increase Happiness? Direct Democracy and Individual Satisfaction in Switzerland

“…First, we provide a more direct test of the association between democracy and happiness than Frey and Stutzer (2000a, b) by incorporating a critical mediating variable in the analysis: citizens' evaluations of how democracy works. Although Frey and Stutzer (2000a, p. 921) argue that democracy influences happiness both through higher satisfaction with policy outcomes that are related to direct democracy and greater involvement in political processes (i.e.…”

“…Former studies (e.g. Frey and Stutzer 2000a) conclude that the procedural effect of direct democracy on happiness is most important: People become happier if they have the opportunity to participate in direct democracy, and if they use that opportunity. While Frey and Stutzer (2000a) investigate this aspect by comparing citizens of Swiss and foreign nationality, we account for the procedural aspect of direct democracy by distinguishing direct democratic rights (rules-in-form), i.e.…”

“…Because individuals are nested within cantons, it is essential to employ multilevel analysis to avoid biased and inefficient estimates of the effects of democracy on satisfaction. By contrast, Frey and Stutzer (2000a, b) treat this ''clustering'' of the data as a nuisance which is corrected for by calculating robust standard errors. Dorn et al (2008, p. 233) apply an ''unweighted random-effects ordered probit model'', which does not even allow for clustering at the contextual level.…”

Using survey data to study capitalization of local public services

“…Local labour market conditions in turn depend on labour supply and therefore on the factors which affect household location decisions, including house prices and amenities. Following the seminal contribution by 5 Winkelmann and Winkelmann (1998), Frey and Stutzer (2000), Clark and Oswald (2002), Frey, Luechinger and Stutzer (2004), Powdthavee (2005) 6 Di Tella, MacCulloch and Oswald (2001) 7 Clark (2001), Shields and Wheatley Price (2002), Kristensen and Westergård-Nielsen (2004) 8 Carlsen andJohansen (2004,2005) 9 Lévy-Garboua, Lohéac and Fayolle (2006) Roback (1982), most empirical studies of capitalization handle the two-ways causality between amenities and job opportunities by estimating two equations explaining house prices and wages as functions of amenities. The value of an amenity is imputed from the estimated coefficients of the amenity in both equations.…”

Federalism's Values and the Value of Federalism

“…In a related paper, Frey and Stutzer (2000) asked if federal institutions might also make a direct (i.e., structural) contribution to citizen welfare beyond their instrumental contribution as shown in Figure 1. Adding DEM and ALLFEDDEM along with LIFEXP, Y/L, ED/EQ to the structural estimation of LIFE/SAT shows both variables are statistically insignificant.…”