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Momeni Mahmouei F, Razmi M J. (2023). The Relationship between Government Size and Happiness. refahj. 22(87), : 3 doi:10.32598/refahj.22.87.3593.2
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Introduction: Since the early 1990s, research on happiness has been regarded as particularly important in the fields of economics. Measuring people's well-being through objective indicators has a long history in economics. The most important idea here is annual income. On the other hand, economists and politicians have also criticized this approach. An alternative approach that has been proposed to measure people's well-being is the subjective approach. This approach evaluates people's well-being in terms of indicators of well-being and life satisfaction. Therefore, in general, a part of economics that uses subjective indicators is known as happiness economics. According to Veenhoven (2013), a Dutch sociologist, happiness is the degree by which a person judges his life to be an ideal life. In other words, how much a person likes his life is the criterion for grading people's happiness. Factors affecting mental well-being are divided into two categories: macro and micro factors. Macro factors are the same for all people, such as inflation, national income, etc., but micro factors change from person to person, such as the feeling of inequality, health, etc. In previous studies, the relationship between macro variables such as annual income, inflation, unemployment and income inequality, and happiness (psychological well-being) have been investigated, but government size has been neglected. In the same way, the effect of variables in most research articles has been investigated in a linear way. On the other hand, few researchers have analysed the nonlinear relationship between happiness and variables. The noteworthy point here is the lack of attention to the effect of the development of countries in the role of the government on happiness. The aim of the current research is to investigate the role of the government on happiness in different countries based on their development using the Astana panel regression. In other words, investigating the role of countries' development on how the size of the government affects happiness is the main goal of this research.
Methods: This research, which focused on the role of human development, used threshold panel regression to investigate the effect of government size on happiness. If we determine the threshold ratio for the human development variable, we can simultaneously analyse the effect of government size in different regimes.
In this research, happiness was considered a function of government size, economic growth, inflation, unemployment and human development. Therefore, considering that the purpose of the current research is to investigate the role of countries development based on the relationship between the size of governments and happiness, the human development variable is considered as a threshold variable. These variables can be shown according to the threshold regression model presented by Hansen (1999).
In this equation,, Hapit is an indicator of happiness that has been extracted from the World Bank database of happiness, and xit is a vector of explanatory variables such as economic growth (GDPgit), unemployment (UNit), inflation (INFit). GSit is also the size of the government, calculated from the ratio of total government expenditures to GDP, all derived from the World Bank's Global Development Index (WDI). Furthermore, HDIit, which is taken out of United Nations development plan, is a Human Development Index and plays the role of the threshold variable and sample division. Countries were chosen based on the availability of the necessary information and data; as a result, information data of 110 countries during 2006_2017 were collected
Findings: At first, stability of the variables was examined using Levin-Len-Chu unit root test. It became known that all the variables were stable at 5%. Next, it is mandatory to analyse the amount of threshold and its meaning before analysing the model totally. Zero hypothesis meaning that the model is linear is rejected according to the result of the table and bootstrap value; so, the model has a threshold and the single-threshold model is a suitable model on the data. Hence, threshold value is 0.577 based on this test.
The result of the threshold test
The assessment of the model is presented in the table below:
The result of the threshold model estimation
As shown in the table above, the coefficient of government size before and after the threshold is different and significant. When government size increases by one unit, happiness decreases by 0.044 units, when the human development ratio is below the threshold value and all variables are held constant. On the contrary, when the human development ratio is above the threshold level, happiness increases by 0.022 units per one unit increase in government size. Also, the results show the positive and significant effect of economic growth and the negative and significant effect of unemployment and inflation on happiness.
Discussion: The results of the analysis indicate that by expanding the size of the government in values higher than the threshold of human development, happiness increases, and vice versa, in values lower than the threshold of human development, increasing the size of the government has a negative effect on happiness. The reason is that the standard of living increases with the improvement of countries' development, education and health, economic growth, equal income, social protection and insurance. Thus, the welfare and comfort of the people will improve and consequently happiness will spread among them. We can promote the mental security and well-being of people by having insurance, better health, better social status and free education provided by the government in a developed country. In other words, sadness and lack of psychological security can be seen in developing countries that do not have the items introduced above. Education and health expenses are considered as disposable expenses of the government, but they are actually major and long-term benefits of economic growth. In fact, the increase in happiness in developed countries shows the effectiveness of government policies through the development of the welfare state, improvements in areas such as education, health and social services, income redistribution policies that can increase living standards and strengthen happiness. In other words, the expansion of governments in developed countries is in line with the welfare state.
On the contrary, in countries with a lower level of development with an excessive expansion of the size of the government in the economy, the increase in the size of the government may be due to the inefficiency of government spending, the expansion of rent-seeking activities, the formation of congestion, and the expansion of corruption. Wasting resources and disrupting the allocation of resources in the market, expanding monopolies and intensifying competitive restrictions in the markets have negative effects on economic growth, social welfare, employment, income distribution and poverty and inequality, and as a result, it reduces the welfare and happiness of the society. Also, the research results show that economic growth has a positive and significant effect on happiness, but inflation and unemployment have negative effects on it. An interesting point is that unemployment has a more damaging effect on happiness than inflation.
Ethical Considerations
Authors’ contributions
All authors contributed in designing, running, and writing all parts of the research.
Conflicts of interest
The authors declared no conflict of interest
Methods: This research, which focused on the role of human development, used threshold panel regression to investigate the effect of government size on happiness. If we determine the threshold ratio for the human development variable, we can simultaneously analyse the effect of government size in different regimes.
In this research, happiness was considered a function of government size, economic growth, inflation, unemployment and human development. Therefore, considering that the purpose of the current research is to investigate the role of countries development based on the relationship between the size of governments and happiness, the human development variable is considered as a threshold variable. These variables can be shown according to the threshold regression model presented by Hansen (1999).
In this equation,, Hapit is an indicator of happiness that has been extracted from the World Bank database of happiness, and xit is a vector of explanatory variables such as economic growth (GDPgit), unemployment (UNit), inflation (INFit). GSit is also the size of the government, calculated from the ratio of total government expenditures to GDP, all derived from the World Bank's Global Development Index (WDI). Furthermore, HDIit, which is taken out of United Nations development plan, is a Human Development Index and plays the role of the threshold variable and sample division. Countries were chosen based on the availability of the necessary information and data; as a result, information data of 110 countries during 2006_2017 were collected
Findings: At first, stability of the variables was examined using Levin-Len-Chu unit root test. It became known that all the variables were stable at 5%. Next, it is mandatory to analyse the amount of threshold and its meaning before analysing the model totally. Zero hypothesis meaning that the model is linear is rejected according to the result of the table and bootstrap value; so, the model has a threshold and the single-threshold model is a suitable model on the data. Hence, threshold value is 0.577 based on this test.
The result of the threshold test
| Hypothesis test | F value | Probability | Critical value at 10% | Critical value at 5% |
| No threshold H0 A threshold H1 |
427.01 | 0.000 | 87.88 | 92.82 |
The assessment of the model is presented in the table below:
The result of the threshold model estimation
| Variable | Coefficient | T value | Probability |
| GS (HDI<0/577) | -0.044 | -5.51 | 0.000 |
| GS (HDI˃0/577) | 0.022 | 4.48 | 0.000 |
| GDPg | 0.03 | 2.44 | 0.015 |
| INF | -0.036 | -3.75 | 0.000 |
| UN | -0.06 | -6.73 | 0.000 |
| Constant | 5.99 | 29.74 | 0.000 |
As shown in the table above, the coefficient of government size before and after the threshold is different and significant. When government size increases by one unit, happiness decreases by 0.044 units, when the human development ratio is below the threshold value and all variables are held constant. On the contrary, when the human development ratio is above the threshold level, happiness increases by 0.022 units per one unit increase in government size. Also, the results show the positive and significant effect of economic growth and the negative and significant effect of unemployment and inflation on happiness.
Discussion: The results of the analysis indicate that by expanding the size of the government in values higher than the threshold of human development, happiness increases, and vice versa, in values lower than the threshold of human development, increasing the size of the government has a negative effect on happiness. The reason is that the standard of living increases with the improvement of countries' development, education and health, economic growth, equal income, social protection and insurance. Thus, the welfare and comfort of the people will improve and consequently happiness will spread among them. We can promote the mental security and well-being of people by having insurance, better health, better social status and free education provided by the government in a developed country. In other words, sadness and lack of psychological security can be seen in developing countries that do not have the items introduced above. Education and health expenses are considered as disposable expenses of the government, but they are actually major and long-term benefits of economic growth. In fact, the increase in happiness in developed countries shows the effectiveness of government policies through the development of the welfare state, improvements in areas such as education, health and social services, income redistribution policies that can increase living standards and strengthen happiness. In other words, the expansion of governments in developed countries is in line with the welfare state.
On the contrary, in countries with a lower level of development with an excessive expansion of the size of the government in the economy, the increase in the size of the government may be due to the inefficiency of government spending, the expansion of rent-seeking activities, the formation of congestion, and the expansion of corruption. Wasting resources and disrupting the allocation of resources in the market, expanding monopolies and intensifying competitive restrictions in the markets have negative effects on economic growth, social welfare, employment, income distribution and poverty and inequality, and as a result, it reduces the welfare and happiness of the society. Also, the research results show that economic growth has a positive and significant effect on happiness, but inflation and unemployment have negative effects on it. An interesting point is that unemployment has a more damaging effect on happiness than inflation.
Ethical Considerations
Authors’ contributions
All authors contributed in designing, running, and writing all parts of the research.
Conflicts of interest
The authors declared no conflict of interest
Type of Study: orginal |
Received: 2021/05/27 | Accepted: 2022/11/19 | Published: 2023/02/8
Received: 2021/05/27 | Accepted: 2022/11/19 | Published: 2023/02/8
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