Does the Credit Cycle Have an Impact on Happiness?

Tinghui Li,Junhao Zhong,Mark Xu

doi:10.3390/ijerph17010183

Abstract

The 2008 international financial crisis triggered a heated discussion of the relationship between public health and the economic environment. We test the relationship between the credit cycle and happiness using the fixed effects model and explore the transmission channels between them by adding the moderating effect. The results show the following empirical regularities. First, the credit cycle has a negative correlation with happiness. This means that credit growth will reduce the overall happiness score in a country/region. Second, the transmission channels between the credit cycle and happiness are different during credit expansion and recession. Life expectancy and generosity can moderate the relationship between the credit cycle and happiness only during credit expansion. GDP per capita can moderate this relationship only during credit recession. Social support, freedom, and positive affect can moderate this relationship throughout the credit cycle. Third, the total impact of the credit cycle on happiness will become positive by the changes in the moderating effects. In general, we can improve subjective well-being if one of the following five conditions holds: (1) with the adequate support from the family and society, (2) with enough freedom, (3) with social generosity, (4) with a positive and optimistic outlook, and (5) with a high level of GDP per capita.

Highlights

Psychologist and economists are trying hard to understand the effect of the subprime mortgage crisis on happiness
Our study explores the impact of the credit cycle on the reported happiness and the varying effect of credit expansion and contraction on happiness
The credit cycle is the main explanatory variable, while GDP per capita, healthy life expectancy, social support, freedom, generosity, corruption perception, positive affect, and negative affect are used as control variables

Summary

Introduction

Psychologist and economists are trying hard to understand the effect of the subprime mortgage crisis on happiness. Regions in Western Europe, North America, and South Asia suffered from substantial declines in the happiness index between pre- and post-crisis. They have fallen to a “happiness trough” in 2009 (for more detailed analysis of the available global data on national happiness see World Happiness Reports 2019: https://s3.amazonaws.com/happiness-report). The credit data from 42 economies provided by Bank for International Settlements (BIS) indicate that the national average of credit-to-GDP reached a historical peak in the third quarter of 2009 (Source: BIS credit-to-GDP gap statistics). Both results appear to provide evidence on the credit-happiness link. For this reason, examining the relationship between the credit cycle and happiness, our chief concern in this paper, is important

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Conclusion