Effect of Economic Performance on Subjective Well-Being: A Multilevel Analysis for Latin America in 2016

Effect of Economic Performance on Subjective Well-Being: A Multilevel Analysis for Latin America in 2016

Jéssica Dávalos (University Center for Economic and Managerial Sciences, University of Guadalajara, Guadalajara, Mexico) and José G. Vargas-Hérnandez (University Center for Economic and Managerial Sciences, University of Guadalajara, Guadalajara, Mexico)
DOI: 10.4018/IJPPPHCE.2020070104
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Abstract

The effect of Economics on the subjective well-being of people has been usually studied by treating country information in the same way as data from individuals. The objective of this paper is to analyze 17 Latin American countries with data from 2016, by including both effects handled into two different levels accordingly. This work contributes to extend the current debate regarding the impact of Economics on subjective well-being of people by applying the multilevel method. Some of the findings revealed that both the individual economic situation as well as the welfare state and the rule of law of a country generate effects on subjective well-being. Similarly, the effect of interaction between some variables was analyzed, and it was concluded that people with great economic difficulties have a stronger relationship with subjective well-being in areas of higher government spending and higher tax burden.
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Introduction

Among the studies that link economy to the subjective well-being of people, several have been interested in how the latter is affected by people's income (Lea, Webley & Levine, 1993; Easterlin, 2001; Frey & Stutzer, 2002; Schyns, 2002; Helliwell, 2003; Alesina, Di Tella & MacCulloch, 2004; Gasper, 2005; Binswanger, 2006).

Other authors have focused on analyzing the effect of variables at the country level on subjective well-being, such as Hayo and Seifert (2003); Alesina et al. (2004); Sanfey and Teksoz (2007); Bjørnskov, Dreher and Fischer (2007); Di Tella and MacCulloch (2008); Shahbaz and Aamir (2008); Dluhosch and Horgos (2013); Powdthavee, Burkhauser and De Neve (2017); Brzezinski (2019) to name a few. That is, economically speaking there are influences at the individual level and at the country level. However, the vast majority of jobs uses single-level methodologies, and disaggregate macroeconomic data at an individual unit level. Or, the authors carry out the analysis at the individual level and omit the context in which mentioned individuals live. The first case may present problems of self-correlation, and the second case of omission of important contextual effects. And both options lead to argumentation errors based on the misinterpretation of statistical results.

Objective and Contributions

The objective of this work is to analyze the level of subjective well-being in Latin America in 2016 by considering the individual economic condition, macroeconomic variables and the effect of interaction between them. The novel finding of the current work aims to contribute by taking into account variables at the individual level and context level, as well as their interaction effect, by using a model that considers in an adequate way the nature and level of every variable. Additionally, studies of Latin America regarding subjective well-being are scarce. As well, these countries are interesting since they have the peculiarity of keeping a certain cultural similarity, and at the same time they can show marked differences in terms of political and economic indicators.

The models that will be used in the present work will be multilevel, since they allow to involve different independent variables at more than one level. This is important because it offers a way to evaluate the effect on well-being in a more adequate way that takes into consideration the structure of data, and in consequence it turns out to be a more robust measurement. Therefore, we will have results that reflect more closely what happens in reality, what could be useful in terms of creating public policy more accurate for bringing well-being to citizens in general. Firstly, the antecedents of subjective well-being and its link with the welfare state are described, in order to then review the empirical literature. Subsequently, the multilevel technique is explained, then a description of the data is made, followed by the presentation and analysis of the results. Finally, the conclusions and limitations of the study are shown.

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Background

Subjective Well-Being

For the purposes of this work, the concept of subjective well-being will be understood in the same way as the Organization for Economic Cooperation and Development (OECD) does. Definition taken from Diener (2006): “Good mental state, which includes all the different evaluations, both positive and negative that people make of their lives, as well as the affective reactions of people to their experiences” (p.152).

With respect to subjective well-being in Latin America, it was found that socio-demographic variables maintain a relationship with subjective well-being not very different from that of industrialized economies (Graham & Pettinato, 2001). However, as economies, the Latin American ones are more heterogeneous among them than they could be, for example, the European ones. So the context could have an even more important role for the Latin case. As an example, Graham and Felton (2006) found greater and more consistent effects of wage inequality on subjective well-being in Latin America in relation to the United States and Europe.

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