Government Expenditure and Happiness: Direct and Indirect Effects

This research paper aims to investigate the importance and significance of government size on happiness. Utilizing a relative large panel sample, which covers 183 countries in a period from 1990 to 2016, the research objective is first to study the direct effect of government expenditure on happiness through basic panel analyses. After understanding the importance and significance of government expenditure, this paper then tries to determine the indirect effects of government expenditure on happiness through the transmission channels include income, inequality, unemployment rate, inflation rate, economic growth and social development. In order to obtain the research objectives, this paper applies not only panel data regression methodologies, such as Pooled OLS, Fixed Effects, Random Effects Models, but also cross-sectional analysis; and finds that government expenditure only affects happiness in short term and that the importance and direction of the transmission channels are heterogeneous.