Do Large Governments Decrease Happiness? New Evidence of a Negative Effect in Europe

Until now little evidence has been found about the relationship between governments and happiness; but when cited; it has suggested a positive influence. Using micro-data from the last three waves of the European Quality of Life Survey and several measures for the weight of the government; such as structural government consumption; structural balance; and public debt; we show that government consumption and the other measures of government imbalances significantly decrease happiness in European countries. Additionally; we present robust evidence of a positive relationship between the quality of government and happiness. This evidence may lead politicians to reject the idea that bigger governments lead to greater satisfaction. This result is consistent with people valuing (negatively) expectations for future tax increases; austerity; and possible corruption-related events.