Who Benefits from Big Government? A Life Satisfaction Approach

Publication Type

Working paper

Authors

Knoll, Bodo; Pitlik, Hans

Year of publication

2014

Published in

WWWforEurope Policy Paper

Which impact does government size have on life satisfaction, and how do effects of
bigger government differ between income groups in society? Previous studies typically
employed country averages and thus neglect possibly heterogeneous happiness effects
between income groups. The paper addresses empirically the effects of government
spending on subjective well-being of individuals belonging to different income groups.
Our analysis is based on individual data from 25 European countries participating in
the European Social Survey. In contrast to most previous studies we take account of
the endogeneity between relative income position and reported life satisfaction by an
instrumental variable approach.
Our results suggest, first, that most government spending categories, including social
protection, are on average negatively related to individual well-being. Secondly,
estimated marginal effects of health, education and social protection spending at
different income levels show that spending increases always have a stronger negative
effect on high income groups’ well-being than on low income groups’ life satisfaction.
For all government spending categories, marginal happiness effects of higher public
spending are clearly negative for income groups at the top.