Life Satisfaction and Public Finance: Empirical Analysis Using U.S. Micro Data

Abstract

The objective of this paper is to explore various relationships between self-reported life satisfaction and state public finance in the U.S. The paper focuses on both government expenditure and revenue (especially tax) structures. This paper is the first of its kind to examine the relationship between individual life satisfaction and overall tax structure, and to consider the expenditure and tax structures together. Using life satisfaction data from the Behavioral Risk Factor Surveillance System between 2005 and 2009, we find that government spending and revenue structures are related to individual life satisfaction as follows: First, the size of general expenditure is positively related to life satisfaction. Among different categories of expenditures, public health expenditure has a positive impact on life satisfaction. The impacts of education and welfare expenditures depend on specific categories within the expenditure. In addition, higher income groups report lower life satisfaction than does the lowest income group with a greater amount of general expenditure, especially with welfare expenditure. Second, with respect to government revenue, life satisfaction is lower with greater tax revenue, and higher with greater non-tax forms of financing expenditures, such as intergovernmental transfer. Among different categories of taxes, individual income tax has a negative impact on life satisfaction. In particular, compared to the lowest income group, higher income groups report lower life satisfaction with greater individual income tax. These results indicate that state public finance matters for individual life satisfaction, and the impact is different across income groups.