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Do Good Institutions Make Citizens Happy, or Do Happy Citizens Build Better Institutions?

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  • Martin Rode

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Abstract

Recent empirical investigations show that ‘good institutions’, in the form of democracy and economic freedom, are related to elevated scores of subjective well-being across countries. Most of these studies automatically assume that causality runs from formal institutions to happiness. None the less, an inverse relationship is also feasible and only a few authors have specifically analyzed this possibility. Furthermore, not much is known about the individual aspects of institutions that are valued by citizens, and how these preferences might change with the level of economic development. This paper contributes to closing these gaps, conducting ordinary least squares- and instrumental variable analysis as an empirical strategy. Results show that citizens in developing countries value the procedural aspects of democracy, access to sound money, and free trade, while citizens in developed countries only seem to value a comparatively well-functioning legal system and higher security of property rights. Findings indicate the existence of a causal channel from economic freedom to well-being, but can’t exclude a long run effect of intrinsic happiness on economic freedom through social capital. Copyright Springer Science+Business Media Dordrecht 2013

Suggested Citation

  • Martin Rode, 2013. "Do Good Institutions Make Citizens Happy, or Do Happy Citizens Build Better Institutions?," Journal of Happiness Studies, Springer, vol. 14(5), pages 1479-1505, October.
  • Handle: RePEc:spr:jhappi:v:14:y:2013:i:5:p:1479-1505 DOI: 10.1007/s10902-012-9391-x
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    1. repec:bla:coecpo:v:35:y:2017:i:2:p:373-391 is not listed on IDEAS
    2. Niclas Berggren & Therese Nilsson, 2013. "Does Economic Freedom Foster Tolerance?," Kyklos, Wiley Blackwell, vol. 66(2), pages 177-207, May.
    3. Eder, Christoph & Halla, Martin, 2016. "The Long-lasting Shadow of the Allied Occupation of Austria on its Spatial Equilibrium," IZA Discussion Papers 10095, Institute for the Study of Labor (IZA).
    4. Berggren, Niclas & Nilsson, Therese, 2016. "Tolerance in the United States: Does economic freedom transform racial, religious, political and sexual attitudes?," European Journal of Political Economy, Elsevier, pages 53-70.
    5. Bodo Knoll & Hans Pitlik & Martin Rode, 2012. "A Note on the Impact of Economic Regulation on Life Satisfaction," WIFO Working Papers 441, WIFO.
    6. Bodo Knoll & Hans Pitlik, 2016. "Who benefits from big government? A life satisfaction approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 533-557.
    7. Rok Spruk & Aleskandar Kešeljević, 2016. "Institutional Origins of Subjective Well-Being: Estimating the Effects of Economic Freedom on National Happiness," Journal of Happiness Studies, Springer, pages 659-712.
    8. Nikolova, Milena, 2016. "Minding the happiness gap: Political institutions and perceived quality of life in transition," European Journal of Political Economy, Elsevier, vol. 45(S), pages 129-148.
    9. Gehring, Kai, 2013. "Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being," World Development, Elsevier, vol. 50(C), pages 74-90.
    10. Arye L. Hillman & Niklas Potrafke, 2016. "Economic Freedom and Religion: An Empirical Investigation," CESifo Working Paper Series 6017, CESifo Group Munich.
    11. repec:spr:soinre:v:132:y:2017:i:3:d:10.1007_s11205-016-1340-3 is not listed on IDEAS
    12. Berggren, Niclas & Nilsson, Therese & Bjørnskov, Christian, 2015. "What Aspects of Society Affect the Quality of Life of a Minority? Global Evidence from the New Gay Happiness Index," Working Paper Series 1101, Research Institute of Industrial Economics.
    13. Gouda, Moamen & Potrafke, Niklas, 2016. "Gender equality in Muslim-majority countries," Economic Systems, Elsevier, vol. 40(4), pages 683-698.
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    15. Bodo Knoll & Hans Pitlik & Martin Rode, 2013. "Economic Freedom, Money and Happiness – Why Deregulation Matters Beyond its Wealth Enhancing Effect," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(2), pages 35-42, 07.
    16. Claudio Detotto & Bryan C. McCannon, 2017. "Economic freedom and public, non-market institutions: evidence from criminal prosecution," Economics of Governance, Springer, pages 107-128.
    17. Berggren, Niclas & Bjørnskov, Christian & Nilsson, Therese, 2017. "Do Equal Rights for a Minority Affect General Life Satisfaction?," Working Paper Series 1156, Research Institute of Industrial Economics.
    18. Bodo Knoll & Hans Pitlik & Martin Rode, 2013. "A note on the impact of economic regulation on life satisfaction," Applied Economics Letters, Taylor & Francis Journals, vol. 20(9), pages 916-920, June.
    19. Christian Bjørnskov, 2014. "Do Economic Reforms Alleviate Subjective Well-Being Losses of Economic Crises?," Journal of Happiness Studies, Springer, vol. 15(1), pages 163-182, February.

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