Happiness and Medical Expenditures: Causal Evidence From Japanese Community Cohort - The Nagahama Cohort

In Japan's era of population decline and fiscal strain, exploring alternative policy levers beyond conventional health-system reforms has become imperative. We examine whether greater happiness reduces individual medical expenditures, using the Nagahama Cohort, a community-based study conducted by the city of Nagahama in partnership with Kyoto University, which links municipal health checks with socioeconomic surveys in 2019 and 2020. An instrumental-variable two-part model, treating happiness as endogenous with perceived "mattering" and "trust" as instruments, shows that a one-point increase in subjective happiness reduces average monthly medical spending by about \264 in 2019 (non-IV: \95) and ¥354 in 2020 (non-IV: ¥171). This average effect can be decomposed into two components: the probability of any medical use (extensive margin) and out-of-pocket spending among individuals with positive spending (intensive margin). The extensive margin shows weak effects, while the intensive margin consistently drives the overall decline in both years. These findings imply that strengthening psychosocial well-being could complement conventional reforms as a feasible lever for cost containment in ageing societies.