Mo Money Mo Problems? Economic Freedom and Subjective Happiness in Europe, 2010–2020

Abstract

It is widely held that economic freedom is fundamental for a society’s prosperity and growth, and neoliberalism has now become the dominant ideology in shaping our world. While a large literature on economic freedom has documented mainly favourable impacts on economic outcomes, only a handful of studies have examined the link between economic freedom and life quality. Building on the most recent data available on European countries, we combined the Index of Economic Freedom from the Frasier Institute with data from the World Bank, Varieties of Democracy and the European Social Survey in the period 2010–2020, allowing for a multilevel analysis of a total of nearly 199,000 respondents from 28 countries. At the individual level, the analysis controlled for the respondents’ demographic background, socio-economic status and social trust. At the country level we controlled for levels of democracy through a composite index. The results for the aggregate models indicate that there is a reversed U-shaped curvilinear association between economic freedom and happiness. However, the results of the disaggregate models, where we tested the associations between each of the individual components of economic freedom and happiness, indicate a reversed U-shape for only one of the five components, sound money. The one-sided focus on minimal government in the research and discourse on economic freedom seems mis-specified. By treating economic freedom as a general composite measure, we run the risk of dramatically over-simplifying the processes at play. Recent developments in multilevel methods and improved access to data should inspire further studies of how economic freedom can serve and benefit citizens’ well-being and thus contribute to well-functioning societies.