The Human Side of Policy: How Regional Fiscal and Macroeconomic Policy Relate to Happiness
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Government Expenditure, Happiness, Local Government, Local Taxes, Macroeconomic Indicators
Abstract
Research Originality – This study addresses a gap in the happiness literature by examining the relationship between government budgets and happiness through the inclusion of both expenditure and revenue sides regionally. It also utilizes more detailed provincial-level data that distinguish among different categories of local government spending and incorporates macroeconomic variables into the analysis.
Research Objectives – This research seeks to provide empirical evidence whether fiscal and macroeconomic indicators are important determinants of happiness. In particular, this study analyzes the extent to which local government budgets and various macroeconomic variables are associated with happiness.
Research Methods – This study applied pooled Ordinary Least Squares and Feasible Generalized Least Squares regression. Panel data comprising relevant variables obtained from Statistics Indonesia and the Ministry of Finance of the Republic of Indonesia over three time points (2014, 2017, and 2021) across 34 provinces were utilized.
Empirical Result – The findings revealed that local government expenditure on goods and services and local capital expenditure were positively associated with happiness under certain circumstances. During the COVID-19 pandemic, local goods and services expenditure was preferred to local capital expenditure for happiness. Meanwhile, local personnel expenditure and local taxes did not exhibit positive relationships with societal happiness. Regarding macroeconomic factors, increases in the Human Development Index and reductions in poverty, inequality, and unemployment were associated with greater happiness.
Implications – Fiscal and macroeconomic policies can be utilized as instruments for enhancing happiness. Government spending priorities under fiscal constraints and holistic macroeconomic targets should be carefully and thoroughly designed to benefit societal well-being.
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