The Study of Nonlinear Effects of Government Size on Happiness in Developing and Developed Countries by the Threshold Approach

One of the most important goals of today's societies is to achieve a happy society, a society where the happiness of its people will improve the quality of life and labor productivity, will boost economic growth and, ultimately, will lead to sustainable development. In this regard, government expenditures and the amount of government intervention in the economy can affect the level of happiness of the society. The economics of happiness addresses issues, such as measuring and analyzing prosperity, quality of life, life satisfaction, and the simultaneous growth of indicators of life in a person, family or community with indicators of psychology, health and sociology. The "happiness economics" is a relatively new area in the economy, which in recent years has become a major contributor to the policy equation of many countries. The relationship between happiness and government activities could be an interesting subject for researchers and policy makers. Government with its expenditures and its interventions in the economy may affect happiness of people. Therefore, the main objective of this paper was to examine the effect of government size on happiness in the selected developing and developed countries. Due to the differences between government efficiency in the countries, the results may be different in these two groups ofcountries.

The methodology of this research is based on the econometrics methodology. Based on the theories existing in the literature and the previous studies, the econometric model was determined and then inferential statistics was used to explore the research hypotheses. A threshold panel model was estimated by modeling the factors affecting happiness, with emphasis on the effect of government size, for the two selected groups of countries. The threshold panel model is a model in which a predetermined predicted behavior starts to change after a threshold value. In this paper, the size of the government was the threshold variable, which divided the size of government into large and small size governments. Then, the effect of the size of government in both large and small governments on happiness was estimated and the threshold government size was estimated by the model over the period of 2005-2016.

The results of the estimation of the research models showed that the government size has a nonlinear effect on happiness in both the developing and developed countries, but how governments influence happiness in these two categories of countries was different. In both the developing and developed countries, the size of the government in the small states did not have a significant impact on happiness; however, in a large government, the size of the government had a negative impact on happiness in the developing countries and it had a positive impact on happiness in the developed countries. The difference in the effects of government size on happiness in both developing and developed countries shows that government policies in the developed countries are more effective in increasing happiness in society compared to developing countries. The results of research models also revealed the increasing impact of per capita income on happiness and the decreasing effect of unemployment rate and inflation on happiness in the selected developing and developed countries. 

The threshold government size refers to the size of the government before which the size of the government does not have any effect on happiness, which could be due to neutralizing the positive and negative effects of the government size on happiness. But for the government with a bigger size that pass the threshold, the negative effects on the bigger size of the government outweighs the positive effects, leading to a decrease in happiness in the selected developing countries. In other words, in the large governments, each unit increase in government size has led to a 0.02-unit decrease in happiness in the developed countries. The results of model estimation vary in the developed countries. The threshold size of government for these countries is estimated at 15.4%. In countries with smaller governments, the size of the government does not have any significant effect on happiness in developed countries. However, after passing the aforementioned threshold and being categorized as a big size government, the increase in state size led to higher levels of happiness in the developed countries, reflecting the effectiveness of government policies in developed countries to boost social happiness. These policies include the increase in welfare, the protection of social rights, the development of community and insurance services, the enhancement of the quality of healthcare for the community, and the promotion of social and economic justice. In other words, the developed communities have developed towards well-being and happiness of their societies. On the other hand, the projected outcomes in developed countries indicate a lack of stability in large states in the developed countries. In these countries, the expansion of government in society has led to economic inefficiency and corruption, which in fact resulted in lower levels of happiness in these societies. Therefore, the government size in both developed and developing countries has had a threshold effect on happiness, but these effects have been completely different in the two groups of countries. Based on the results of the study, policy makers are advised to take into account the threshold relationship between government size and happiness. In this way, politicians would be able to direct the government expenses towards enhancing happiness in the society.