engleski

Macroeconomic determinants of happiness in transition countries

The main aim of this paper is to identify macroeconomic determinants of happiness, i.e. well-being in the set of transition countries. Namely, economists usually take for granted that people dislike unemployment and inflation. Since policy makers follow policies that try to help the economy and reduce the economic "evils", the question of exactly how much people dislike each of these two variables that are particularly harmful for an economy is of central interest. This approach can also give us an insight into the variables and their weights in the social welfare function. When discussing social welfare function and its variables, however, an important issue that arises is that there is an apparent gap in the literature between theory and empirical work. Namely, social welfare function has rarely been operationalised in empirical work. Therefore, one of the implicit goals in this paper is to find an appropriate tool to assess it. We find that one of the possible approaches is precisely through the happiness functions. Therefore, we seek to find what the macroeconomic determinants of self-reported measures of life satisfaction were during the transition. In our empirical work we analyse sociological surveys called the New Democracies Barometer that were conducted in five years in the 1990s. We use probit regression. The results indicate that both inflation and unemployment influence economic well-being negatively. Inflation, additionally exhibits non-linear effect on happiness, reflected through the negative squared inflation term. Unemployment seems to be consistently more important than inflation.

happiness function; transition; inflation; unemployment

nije evidentirano