Economic Freedom and Emotional Well-Being

Abstract

1.IntroductionOver the past several decades, a large theoretical and empirical literature has established that economic freedom - the mix of policies and institutions that emphasize the importance of personal freedom, voluntary exchange, protection of private property, and the freedom to enter markets and compete - is associated with many positive socio-economic outcomes. Some of these outcomes include faster economic growth, greater investment in physical and human capital, poverty reduction, lower unemployment rates, and higher levels of social trust and tolerance (see Hall and Lawson (2014) for a recent review of literature). Within this literature, a number of studies have explored the empirical link between economic freedom and subjective well-being (SWB) and found that people who live in countries with institutions consistent with the principles of economic freedom are more likely to report higher levels of SWB (Bjornskov, Dreher, and Fischer, 2010; Gehring, 2013; Gropper, Lawson, and Thorne, 2011; Ott, 2010; Rode, 2013). Recent research has further highlighted that increases in economic freedom are strongly associated with greater well-being at the U.S. state level (Belasen and Hafer, 2013).Most of these studies, however, examine the effect of economic freedom on life satisfaction, which is a reflective assessment of one's life that requires an effort to remember and evaluate past experiences. Yet, psychologists often distinguish between two separate dimensions of SWB, namely, life evaluation and emotional well-being (Diener, 1984). The latter refers to the everyday positive and negative emotional states such as excitement, sadness, anger, stress, or loneliness that are experienced in real time and make one's life pleasant or unpleasant.1 These different dimensions of SWB are only weakly correlated, have different correlates in the circumstances of people's lives, and the order of importance of the various dimensions is unclear (Fitoussi, Sen, and Stiglitz, 2009; Kahneman and Deaton, 2010). In order to get a satisfactory appreciation of people's quality of life, then, it is important to distinguish between these different aspects of SWB and understand their determinants.This study endeavors to fill the gap in the economic freedom and happiness literature by examining the relationship between economic freedom and emotional well-being measured by the self-reported presence of positive and negative affect or experiences of feeling or emotion. We make several contributions to the literature. First, we propose mechanisms through which economic freedom may affect emotional well-being. We argue that there are two channels through which economic freedom can affect people's day-to-day emotional states and ultimately lead to higher levels of life satisfaction: socio-economic outcomes and procedural utility.Second, this is the first study that we are aware of that empirically analyzes the relationship between economic freedom and emotional well-being. We take advantage of a module from wave 2 (1990-1994) of the World Values Surveys (WVS) that asks 15,000 respondents across a dozen countries (see Table 2 for a list of countries) to evaluate their recent emotional states such as feelings of excitement, boredom, and loneliness. We develop indices of positive and negative affect and find that individuals living in countries with greater economic freedom are more (less) likely to report feelings of positive (negative) affect. We also examine the correlation between economic freedom and eight individual measures of emotional well-being and find that individuals living in more economically free nations are more likely to report the presence of positive feelings such as accomplishment, excitement, and being on the top of the world. At the same time, they are less likely to report feelings of boredom, disappointment, loneliness, pride, and restlessness.Overall, our results are consistent with previous studies that have found economic freedom contributes to higher levels of life satisfaction and suggest a possible channel through which this positive association may work: the presence of positive day-to-day feelings and the absence of negative ones leaves people in more economically free societies more satisfied with their lives. …