Environmental protection and happiness: A long-run relationship in Europe

Abstract

The possible linkage between environmental regulation and happiness represents a relatively new and little explored issue. This study wants to contribute to this recent stream of research by examining the long-run relationship between environmental protection expenditure and happiness in the case of European countries. The analysis draws both on micro data from Veenhoven's (2013) World Database of Happiness and macro data of 19 European countries observed during the period 1997–2019. A dynamic panel heterogeneity analysis through an autoregressive distributed lag model is applied, using three different estimators: the dynamic fixed effect, the mean group and the pooled mean group estimators. In order to account for cross-sectional dependence of the panel, Westerlund cointegration tests are also used. Dynamic fixed effect estimations highlight the existence of a direct link between happiness and environmental protection expenditure in the long run while the unemployment rate negatively affects happiness both in the short and in the long run. Our analysis recommends governments to include environmental expenditure among possible instruments to improve domestic well-being, highlighting the importance of the interplay between environmental quality and life satisfaction. The last aspect is crucial when implementing national and European policy measures to promote sustainable development.