When does government debt make people happier? Evidence from panel data of 125 countries

Haejo Kang () and Dong-Eun Rhee ()
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Haejo Kang: Columbia University
Dong-Eun Rhee: Korea University

Economics of Governance, 2024, vol. 25, issue 1, No 2, 56 pages

Abstract: Abstract This study utilizes panel data from 125 countries spanning 2005–2015 to empirically examine the impact of government debt on country-level subjective well-being. The fixed effect model results show that an increase in the government debt-to-GDP ratio significantly reduces subjective well-being in countries with low governance quality. However, this negative effect of government debt on happiness is substantially offset in countries exhibiting governance quality above the median value. The main result is robust to controlling for various sources of government debt. Moreover, we find that under certain conditions, such as high levels of government effectiveness, rule of law, or strong control of corruption, an increase in government debt is positively associated with people’s subjective well-being. In addition, the positive effect of government debt on country-level happiness is also observed in high-income countries with high governance quality. Our results suggest that it is not government debt itself that influences citizens' happiness levels, but rather how this debt is managed and the degree of trust citizens place in their government.

Keywords: Government debt; Subjective well-being; Governance quality; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H11 H63 I31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10101-024-00309-9

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