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The Bigger the Better? Evidence of the Effect of Government Size on Life Satisfaction around the World

40 Pages Posted: 2 Nov 2005  

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies

Axel Dreher

University of Heidelberg

Justina A. V. Fischer

Organization for Economic Co-Operation and Development (OECD); Stockholm School of Economics; University of Hohenheim

Date Written: October 2005

Abstract

This paper empirically analyzes the question whether government involvement in the economy is conducive or detrimental to life satisfaction in a cross-section of 74 countries. This provides a test of a longstanding dispute between standard neoclassical economic theory, which predicts that government plays an unambiguously positive role for individuals' quality of life, and public choice theory, that was developed to understand why governments often choose excessive involvement and regulation, thereby harming voters' quality of life. Our results show that life satisfaction decreases with higher government spending. This negative impact of the government is stronger in countries with a leftwing median voter. It is alleviated by government effectiveness - but only in countries where the state sector is already small.

Keywords: Life satisfaction, Government

JEL Classification: I31, H10, H40

Suggested Citation

Bjørnskov, Christian and Dreher, Axel and Fischer, Justina A. V., The Bigger the Better? Evidence of the Effect of Government Size on Life Satisfaction around the World (October 2005). Available at SSRN: https://ssrn.com/abstract=830545 or http://dx.doi.org/10.2139/ssrn.830545

Christian Bjørnskov (Contact Author)

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Axel Dreher

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Justina A.V. Fischer

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

University of Hohenheim

Fruwirthstr. 48
Stuttgart, 70599
Germany

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