The Impact of a Financial Crisis of Happiness

The purpose of this research is to find a relationship between happiness and financial crises. To do so, it examines the effects of 2008 crisis as captured by GDP growth, change in unemployment rate and change in inflation rates on and life satisfaction and searches for a negative relationship between them. It uses ordered probit specifications with a categorical dependent variable and explores changes in macroeconomic indicators which are attributed to the crisis. This research also argues that the high degree of trust in institutions in crisis periods can be an important determinant of reporting high life satisfaction. The argument is that economic consequences in real life will affect less life satisfaction since the trust in national governments is considerable. Political environment is expected to influence stability and as a consequence to rise insecurity during crisis episodes. During the crisis, the trust in institutions is an important element for a nation’s actual and psychological wellbeing. Results show that, under some specifications GDP growth has a negative impact on life satisfaction. The change in unemployment rate has a significant influence only when the trust in national government in low. The change in inflation rate does not have a significant effect on the dependent variable.