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Austerity, Life Satisfaction and Expectations

Author

Listed:
  • Sarah Brown

    () (Department of Economics, University of Sheffield)

  • Alexandros Kontonikas

    () (Essex Business School, University of Essex)

  • Alberto Montagnoli

    () (Department of Economics, University of Sheffield)

  • Mirko Moro

    () (Stirling Management School, University of Stirling)

  • Luisanna Onnis

    () (Huddersfield Business School, University of Huddersfield)

Abstract

This paper examines the linkages between fiscal austerity and life satisfaction across sixteen European countries using a sample of repeated cross-sections of individuals from 1983 to 2013 (N=853,482). Austerity is identified using changes in the cyclically-adjusted primary balance. Our dataset allows us to control for several individual-specific characteristics that are known to affect life satisfaction. In our empirical framework, we account for the role of macroeconomic developments and expectations. We find that austerity is inversely associated with life satisfaction, with the effect operating through an economic channel. Specifically, it is only the part of austerity correlated with macroeconomic developments, that is shown to empirically matter. Moreover, we show that the negative effect of austerity is mediated by expectations. Individuals with positive expectations about their future prospects are less affected, in terms of falling life satisfaction, by contractionary fiscal policies.

Suggested Citation

  • Sarah Brown & Alexandros Kontonikas & Alberto Montagnoli & Mirko Moro & Luisanna Onnis, 2018. "Austerity, Life Satisfaction and Expectations," Working Papers 2018001, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2018001
    as

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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2018001
    File Function: First version, January 2018
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Expectations; Fiscal Austerity; Government Policy; Life Satisfaction;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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