The more progressive a tax system — where higher tax brackets have higher tax rates — the more likely people are to report feeling they live the “best possible life,” according to a new study comparing 54 nations.
“The more progressive the tax policy is, the happier the citizens are,” said University of Virginia psychologist Shigehiro Oishi, the lead author of the study.
The study analyzed a total of 59,634 people surveyed by the Gallup Organization in 2007 and found those living in the nations with the most progressive taxation evaluated their own quality of life higher than those living in nations with flatter taxation.
That happiness, according to Oishi, was “explained by a greater degree of satisfaction with the public goods, such as housing, education, and public transportation.”
“If the goal of societies is to make citizens happy, tax policy matters,” he said. “Certain policies, like tax progressivity, seem to be more conducive to the happiness of the people.”
Surprisingly, even though people’s quality of life was associated with their satisfaction with state-funded services, higher government spending did not yield greater happiness.
“That data is kind of weird,” Oishi said. He theorized that this result may be because some nations spend their money more effectively than others, noting that the U.S. spends more on education and health care than other developed countries, yet has a lower international standing in those areas.
Oishi’s study will be published in the next issue of the peer-reviewed journal Psychological Science. It was co-authored by Ulrich Schimmack of the University of Toronto at Mississauga and Ed Diener of the University of Illinois.
The study followed up on a previous study conducted by Oishi that analyzed 48,000 respondents over 37 years and found income disparity in the U.S. was associated with unhappiness — except for the richest 20 percent.
“Income disparity has grown a lot in the U.S., especially since the 1980s,” he explained. “With that, we’ve seen a marked drop in life satisfaction and happiness.”
Both studies show only correlations and not causation, meaning the connection between economics and personal satisfaction is unclear. Other factors could have contributed to the differences in self-reported quality of life.
Nevertheless, Oishi concluded: “If we care about the happiness of most people, we need to do something about income inequality.”