The Effect of Inflation Uncertainty on Happiness in Developed and Developing Countries

Being happy and satisfied with life is one of the most important goals of human societies. In recent decades, the concept of happiness has been considered as one of the most important measures of better living and well-being in the economy. Due to the great impact that happiness has on the dynamism and mobility of society and as a result increase efficiency and productivity and ultimately economic growth and development, recognizing and analyzing the factors' affecting happiness has become particularly important. Since the advent of the happiness economic in the 1970s, several studies have examined the relationship between different economic factors on happiness. One of the economic variables whose changes can affect the level of happiness of society is inflation. Inflation is unpleasant for people and reduces people's happiness. Inflation is one of the harmful economic phenomena that imposes high economic and social costs on societies. But one of the main and most important economic losses due to inflation is the uncertainty of its amount in future periods. Inflationary uncertainty is a situation in which economic agents are uncertain about their future inflation decisions. Given that uncertainties have become an integral part of the economic and also due to the destructive effects of these uncertainties on the economic and economic activities and ultimately on the happiness and well-being of society, the main purpose of this study is to investigate the effect of inflation uncertainty on happiness. The relationship between inflation uncertainty and happiness is examined for the first time. In the current research, 100 countries according to the latest classification of countries by the World Bank based on the income level of the countries, have been selected in the period from 2005 to 2021. They are grouped into two groups of countries with low income and lower middle income (developing countries) and the group of countries with upper middle income and high income (developed countries), and the relationship between inflation uncertainty and happiness has been investigated for all three categories of countries (100 selected countries and two income groups) using the panel data regression approach. Inflation uncertainty in this study was estimated using the variance model of autoregressive conditional heterogeneity (ARCH). Measures of happiness for the countries studied are extracted from the World Happiness Report. In addition to the inflation uncertainty variable, the relationship between other economic factors such as per capita income, income inequality, inflation, unemployment, health expenditures and government expenditures with happiness has also been examined. For 100 countries: Based on the regression results of the happiness model, inflation uncertainty has a negative effect on happiness and therefore the research hypothesis is confirmed. For one percent increase in inflation uncertainty, happiness decreases by about 0.002 percent. The results show that all explanatory variables in this research have the expected effects on happiness. The per capita income has a positive and significant relationship with happiness, so that a one percent increase in percapita income increases happiness by 0.07 percent. Inflation has a negative effect on happiness, but what is important according to the results of the happiness model estimation in this research is that both inflation and inflation uncertainty decrease happiness, but inflation uncertainty decreases happiness more. Unemployment and Income inequality have a negative effect on happiness. The health expenditure and the government expenditure variables have a positive effect on happiness.For low income-lower middle income (developing) and upper middle income-high income (developed) countries: The results show that inflation uncertainty has a negative effect on happiness in both groups of countries. The inflation uncertainty coefficient in the group of countries with upper middle income and high income is 0.22, which is higher than the other group (0.002). In other words, inflation uncertainty reduces happiness much more in these countries. Per capita income in this group of countries, with a coefficient of 0.14, has a more positive effect on happiness than the other group (0.08). Also the coefficients of the three variables of inflation, income inequality and unemployment are larger in this group compared to the other group, and therefore the effect of these variables in reducing happiness is greater. On the other hand, the two variables of health expenditure and government expenditure increase happiness more in the group of developing countries. Studies in the field of economics of happiness, due to the significant importance of happiness as one of the influential factors in the economic growth and development of countries, have had a significant growing trend since the 1970s. Recognizing and analyzing the factors that affect happiness has been the main goal of most happiness research. The efforts of economists to evaluate economic factors affecting happiness has led to valuable findings that have led to major changes in the economic growth and development policies of countries, which the world happiness report clearly reports every year. Comparing the results in two groups of countries in this study shows that, percapita income has shown the strongest positive effect on happiness, especially in the group of developed countries. inflation, income inequality and unemployment have caused a greater decrease in happiness in this group, which has the most negative effect related to unemployment, followed by income inequality and inflation. However, health and government expenditures in the other group have a greater effect on increasing happiness, which shows the importance of health, nutrition, and public expenditures to improve people's happiness.One of the main and most important economic losses caused by inflation is the uncertainty of its amount in future periods. Uncertainty about the future inflation rate creates instability in prices, and through this channel, it constantly causes changes in economic decisions. Inflation reduces people's happiness, but the uncertainty of future inflation reduces their happiness even more (In both groups of countries). In line with sustainable economic growth and development, it is suggested that countries should increase people's confidence regarding the stability of prices and inflation in the future with long-term planning and increase people's happiness by trying to distribute income fairly and paying special attention to health and employment.