Explaining the Dynamics and Drivers of Financial Well-Being in the European Union

Abstract

This paper studies the dynamics and determinants of financial well-being in the EU-27 area, by comparatively examining its objective and subjective dimensions, based on Eurostat aggregated data. A common set of socio-economic drivers, including economic growth, has been explained in relation with the objective and subjective well-being, instrumented here by variables in the area of the upward income transitions and economic strain, with a view to finding out whether a common set of governmental policies could effectively target both the objective and subjective dimensions of financial well-being. The main econometric tools used in the paper are the generalized method of moments and the feasible generalized least-squares. The empirical results suggest that, while the impact of some determinants is similar for the objective and subjective financial well-being, the impact of others is divergent, in the sense that they could stimulate one dimension of well-being and hinder another. For instance, the paper finds that the social protection expenditure is more effective than the labour market policy expenditure when targeting the financial subjective well-being and the short upward income transitions, but the labour market policy expenditure becomes more effective when targeting the large upward income transitions. Overall, the empirical results indicate that it is difficult to aim at improving all dimensions of well-being by a common set of governmental policies within the EU-27.