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Economic Freedom and Life Satisfaction: Mediation by Income per Capita and Generalized Trust

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  • Johan Graafland
  • Bart Compen

Abstract

Several researches have shown that economic freedom is positively related to life satisfaction. Only a few studies, however, have examined which aspects of economic freedom (small government size, quality of the legal system, sound money, trade openness or no regulation) drive this relationship. Furthermore, most studies construe the influence of economic freedom as additional to the influence of income per capita on life satisfaction. No research has studied the potential mediating role of income per capita or other mediators in the relationship between economic freedom and life satisfaction. In order to fill these gaps, this paper aims (1) to investigate which aspects of economic freedom are most related to life satisfaction, and (2) to test whether these relationships are mediated by income and trust. Based on a sample of 120 countries, we find that life satisfaction is positively related to the quality of the legal system and negatively related to small government size. Income per capita mediates the positive influence of the quality of the legal system on life satisfaction. Trust is found to mediate the positive influence of the quality of legal system and the negative influence of small government size on life satisfaction, but the significance of these indirect effects depends on the type of economic freedom indicators used. We find no significant direct effects from the economic freedom indicators on life satisfaction. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Johan Graafland & Bart Compen, 2015. "Economic Freedom and Life Satisfaction: Mediation by Income per Capita and Generalized Trust," Journal of Happiness Studies, Springer, vol. 16(3), pages 789-810, June.
    • Handle: RePEc:spr:jhappi:v:16:y:2015:i:3:p:789-810
    DOI: 10.1007/s10902-014-9534-3
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    3. Graafland, Johan, 2023. "Economic freedom and life satisfaction: A moderated mediation model with individual autonomy and national culture," European Journal of Political Economy, Elsevier, vol. 79(C).
    4. Qiang Li & Lian An, 2020. "Corruption Takes Away Happiness: Evidence from a Cross-National Study," Journal of Happiness Studies, Springer, vol. 21(2), pages 485-504, February.
    5. Johan Graafland, 2020. "When Does Economic Freedom Promote Well Being? On the Moderating Role of Long-Term Orientation," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 149(1), pages 127-153, May.
    6. Johan Graafland, 2023. "On Rule of Law, Civic Virtues, Trust, and Happiness," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 18(4), pages 1799-1824, August.
    7. Yu-Chuan Chen & Yung-Ho Chiu & Tzu-Han Chang & Tai-Yu Lin, 2023. "Sustainable Development, Government Efficiency, and People’s Happiness," Journal of Happiness Studies, Springer, vol. 24(4), pages 1549-1578, April.
    8. Lisa Windsteiger & Michael Ahlheim & Kai A. Konrad, 2022. "Curtailment of Civil Liberties and Subjective Life Satisfaction," Journal of Happiness Studies, Springer, vol. 23(5), pages 2157-2170, June.
    9. Jeremy Jackson, 2017. "Free to Be Happy: Economic Freedom and Happiness in US States," Journal of Happiness Studies, Springer, vol. 18(4), pages 1207-1229, August.
    10. Johan Graafland & Bjorn Lous, 2018. "Economic Freedom, Income Inequality and Life Satisfaction in OECD Countries," Journal of Happiness Studies, Springer, vol. 19(7), pages 2071-2093, October.
    11. Yong Ma & Diandian Chen, 2022. "Openness, Income Inequality, and Happiness: Evidence from China," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 371-393, June.
    12. Dawood Ashraf & Muhammad Suhail Rizwan & Barbara L’Huillier, 2022. "Environmental, social, and governance integration: the case of microfinance institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 837-891, March.
    13. Johan Graafland & Bjorn Lous, 2019. "Income Inequality, Life Satisfaction Inequality and Trust: A Cross Country Panel Analysis," Journal of Happiness Studies, Springer, vol. 20(6), pages 1717-1737, August.
    14. Petar Stankov, 2017. "Economic Freedom and Welfare Before and After the Crisis," Springer Books, Springer, number 978-3-319-62497-6, September.
    15. Debraj Kalyan Roka, 2019. "GDP Growth and Income Paradoxical Relation to Happiness in China and South Asian countries," International Journal of Science and Business, IJSAB International, vol. 3(4), pages 61-85.
    16. Olalekan C. Okunlola & Olumide A. Ayetigbo, 2022. "Economic Freedom and Human Development in ECOWAS: Does Political-Institutional Strength Play a Role?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1751-1785, September.
    17. Lous, Bjorn, 2020. "On free markets, income inequality, happiness and trust," Other publications TiSEM e2480eed-722b-4e2a-8e29-4, Tilburg University, School of Economics and Management.
    18. Jackson, Jeremy & Beaulier, Scott, 2023. "Economic freedom and philanthropy," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 148-183.

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