Don’t Hold Your Breath (Part 3)

Key Points

  • One measure of a nation’s success is its PPP GDP Per Capita.
  • But there are other measures of a country’s success that may be more relevant, such as the happiness of its citizens.
  • The correlation between the happiness index and taxes is strong and robust, and thus worth considering when implementing tax policy.

Perhaps there is a better measure of how well a country is doing beyond just its level of economic output? For example, if production is excellent, but if all of the wealth is concentrated to a small percentage of the population, overall happiness may erode over time, which is not ideal.

World Happiness Report

For the second year in a row (as of March 2019), Finland ranks as the happiest country on the planet. But what is this small Nordic country doing that sets it apart? And isn’t happiness an utterly subjective measure anyway?

Since the early part of this decade, the United Nations has been studying happiness under the adopted resolution 65/309 Happiness: Towards a Holistic Definition of Development to provide better guidance for public policy. Thus, was born the World Happiness Report.

The World Happiness Report is a landmark survey of the state of global happiness that ranks 156 countries by how happy their citizens perceive themselves to be.

World Happiness Report

To measure happiness, surveys are conducted around the globe each year. The questions that are asked are based upon the Cantril ladder survey. And the questions are designed to gauge an understanding of happiness across a host of variables that correlate to individual happiness. These variables currently include real GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity, and perceptions of corruption.

The rankings of national happiness are based on a Cantril ladder survey. Nationally representative samples of respondents are asked to think of a ladder, with the best possible life for them being a 10, and the worst possible life being a 0. They are then asked to rate their own current lives on that 0 to 10 scale.[20]

Wikipedia

So based upon this methodology, countries with higher happiness scores are ranked higher. Simple enough.

Who’s On Top?

In Table 1 below, we see the rankings for the top 25 countries from the 2018 World Happiness Survey.

Table 1. Top 25 Counties by Happiness Score. (Source: World Happiness Survey)

As mentioned, Finland tops the list. But also of note, the top four are Nordic countries, Finland (1), Norway (2), Denmark (3), Iceland (4). Also of note, the United States is 18 on the list.

Nothing Is Perfect

But isn’t happiness subjective? Sure, this is one criticism of this particular survey. After all, these scores are self-reported. And just because a country’s citizens “think” that they are happy, it doesn’t mean that they are really “happy.” For instance, “if the rate of suicide is used as a metric for measuring unhappiness, (the opposite of happiness), then some of the countries which are ranked among the top 20 happiest countries in the world will also feature among the top 20 with the highest suicide rates in the world.” (DailyTrust)

Others argue that some questions in the survey have a higher weight in the final score than is warranted. For instance, Colombia came 37th in the 2018 World Happiness Index but 1st by daily emotional experience (LinkedIn). Furthermore, different questions and alternative variables would, of course, lead to different country rankings.

We’ll explore alternative measures of happiness down the road, but for now, let’s take these happiness rankings at face value. So, back to our original question; could the level of taxation within a given country influence its ranking? In the next post of this series, we’ll run some numbers and see where the analysis takes us.