The more, the better: life satisfaction in the bitter welfare state

Given the current global economic turmoil the subject of the welfare state has been exposed to a critical debate regarding the true costs it comes with. Taking the Nordic countries as a baseline many European countries have adopted strong social protection programs to maintain the quality of life for their citizens. However, given the costs that come with these social benefits, there arises the question whether people truly thrive in the welfare state or are they better off without it. The objective of this research is to provide empirical evidence for the existence of a non-linear relationship between social expenditure and life satisfaction. Based on the happiness economics literature, the current paper distinguishes itself by examining the connection between life satisfaction, as a proxy for wellbeing, and social expenditure. Additionally, based on the hypothesis that countries seek out to maintain life satisfaction in periods of unfavorable economic conditions through increases in social expenditure, we calculate the optimal level of debt cost that should be supported by the respective countries. We test on a sample of 15 European countries on a time span of ten years and our findings suggest that there is a non-linear relationship between life satisfaction and social expenditure. Moreover, countries have been increasing their debt levels over an optimal level to fuel social expenses in order to maintain citizens’ life satisfaction. Reduction in social expenses are often perceived to have negative political impact, they are less likely to be implemented. Thereby, this issue could only be addressed through increases in taxation. The value of the study resides in exploring the link between life satisfaction and income, and also how increases in government debt would impact the aforementioned variable