Fiscal Policies, Decentralization, and Life Satisfaction

This paper studies the relationship between wellbeing and governments’ fiscal policies across the world, including government decentralization, over the period between 1999 and 2018. In contrast to the previous literature on wellbeing, the current paper investigates four forms of life satisfaction (SL) as the dependent variable and tries to answer whether different types of public spending program, different types of taxes and the level of fiscal decentralization influence wellbeing as measured by life satisfaction. The analysis uses survey data from two sources of life satisfaction variables: The World Values Survey and the European Values Survey, both of which use a ten-level SL scale. I treat these satisfaction values in four ways, resulting in four robust models (two logit models, one Ordinary Least Squares model and one stereotype logistic model). The same control variables and fixed effects are used in all models. The results indicate that personal individual taxes, labor taxation (income and payroll taxes), indirect taxes on goods and expenditures on environmental protection and education have a significant and positive effect on life satisfaction in all four models. Likewise in all four models, taxes on property and expenditures on health and culture are significant and negative. Furthermore, while increased decentralization (in the form of greater vertical fiscal imbalance and expenditure decentralization) improves the likelihood of having a life satisfaction greater than six (of ten), the effect of transfers to subnational governments’ own revenue is significant and negative in all models.