Environmental Impact Assessment Review 93 (2022) 106704

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Environmental Impact Assessment Review

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Environmental protection and happiness: A long-run relationship in Europe

Mariangela Bonasia a, Elina De Simone b, *, Marcella D’Uva a, Oreste Napolitano a
a
Department of Business and Economic Studies, University of Naples Parthenope, Italy
b
Department of Economics, University of Roma Tre, Italy

A R T I C L E I N F O A B S T R A C T

JEL: The possible linkage between environmental regulation and happiness represents a relatively new and little
C22 explored issue. This study wants to contribute to this recent stream of research by examining the long-run
I31 relationship between environmental protection expenditure and happiness in the case of European countries.
Q58
The analysis draws both on micro data from Veenhoven’s (2013) World Database of Happiness and macro data of
Keywords: 19 European countries observed during the period 1997–2019. A dynamic panel heterogeneity analysis through
Environmental protection expenditure
an autoregressive distributed lag model is applied, using three different estimators: the dynamic fixed effect, the
Happiness
Long-run relationship
mean group and the pooled mean group estimators. In order to account for cross-sectional dependence of the
Dynamic fixed effect panel, Westerlund cointegration tests are also used. Dynamic fixed effect estimations highlight the existence of a
Mean group direct link between happiness and environmental protection expenditure in the long run while the unemploy­
Pooled mean group ment rate negatively affects happiness both in the short and in the long run. Our analysis recommends gov­
ernments to include environmental expenditure among possible instruments to improve domestic well-being,
highlighting the importance of the interplay between environmental quality and life satisfaction. The last aspect
is crucial when implementing national and European policy measures to promote sustainable development.

1. Introduction represent a better measure of social progress (Breslow et al., 2016).

Promotion of sustainable development and the provision of citizens’
well-being represent key environmental management goals and are two
of the fundamental aims of many multilateral environmental agree­
ments. In particular, the parties which ratified the Aarhus Convention1
recognized the importance of extensive environmental protection for the
well-being of present and future generations. They also stated that
everyone has the right to live in an environment fitting for their own
health.2 In October 2019, the Council of the European Union invited the
Member States to “develop a cross-sectoral assessment of impacts on
wellbeing in order to strengthen knowledge-based policy and decision-
making” (Council of the European Union, 2019, p. 10). Therefore, the
pursuit of happiness and well-being cannot represent a secondary
objective also in environmental policy (United Nations, 2011; Breslow
et al., 2016). As pointed out by Gowdy (2005), welfare policies that
focus more on measures of well-being than ordinary income indicators
can better achieve environmental and social sustainability goals and can
Moreover, as stated by Helliwell et al. (2012), the goal of well-being of a
community and the growing importance of societal happiness trigger an
alternative development approach “that challenges the logic of GDP
metrics” (Verma, 2017, p.477). After all, it should not be forgotten that
economic growth is a tool to improve quality of life and well-being for
current and future generations. Happiness measures allow us to proxy
the concept of utility or subjective well-being defined as a state char­
acterized by health, happiness and prosperity (Frey and Stutzer, 2010)
or intended as a “condition of appreciation of life” (Veenhoven, 2000, p.
4 and p. 11).3 Indeed, a more recent version of the World Happiness
Report, in light of the “growing awareness of the major role that the
natural environment plays in our happiness”, started to look at the ef­
fects of environmental quality on life satisfaction (Krekel and MacK­
erron, 2020, p. 97). Given the complex interplay between environmental
conditions and human well-being (Breslow et al., 2016), an interesting
question concerns the actions that policymakers can take to improve
environmental quality which is proved to shape happiness and quality of

* Corresponding author at: Department of Economics, University of Roma Tre, Via Silvio D’Amico 77, 00145 Roma, Italy.
E-mail address: elina.desimone@uniroma3.it (E. De Simone).
1
Aarhus Convention of 1998 on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters
2
https://www.unece.org/fileadmin/DAM/env/pp/documents/cep43e.pdf
3
For a review of the debate on the use of happiness as a proxy of subjective well-being and welfare see Diener et al. 1999, Veenhoven, 2000 and Lewis (2014).

https://doi.org/10.1016/j.eiar.2021.106704
Received 22 February 2021; Received in revised form 29 September 2021; Accepted 13 November 2021
Available online 4 December 2021
0195-9255/© 2021 Elsevier Inc. All rights reserved.
M. Bonasia et al.
life (Krekel and MacKerron, 2020, p. 97). The answer to this question
concerns possible policy actions for controlling pollution and environ­
mental degradation that could adversely affect the well-being of a
community. The linkage between environmental degradation and well-
being can be explained in the light of the environmental failure of
market societies and the “interrelated dimensions of ecological integrity
and human well-being” (Breslow et al., 2016, p. 251). Public spending
on environmental protection is a response to a worsening in the quality
of life caused by overexploitation of natural resources and aims to
restore happiness by improving the quality of the environment and
securing a healthy ecosystem. The role of public expenditure is thus to
provide those goods like environmental protection and pollution
abatement which, by influencing the capacity of individuals and com­
munity to achieve a healthy environmental goal, can be considered an
attribute of well-being (Breslow et al., 2016, p. 252).
While the relationship between well-being, happiness and the envi­
ronment has attracted an increasing number of scholars (Maddison
et al., 2020; Krekel and MacKerron, 2020), the specific role that public
expenditure may play in conditioning environmental quality, and thus
its effect on well-being, is still a less explored issue (Guo et al., 2020).
The quality of public policy, together with purchasing power (GDP per
capita) and life expectancy, explain about 75% of the differences in
average happiness in nations and that such differences “are related to
differences in important actual living conditions, like safety, healthcare,
public governance, and, obviously, ecological conditions” (Ott, 2021 p.
5). In particular, environmental protection is a fundamental goal of the
public policy action addressing sustainability issues (Postula and
Radecka-Moroz, 2020). Public expenditure on environmental protection
represents an effective tool for implementing such a goal as it may
contribute to reduce pollution (Postula and Radecka-Moroz, 2020).
Moreover, studying factors affecting public environmental expenditure
as well as related impacts is particularly important in order to improve
future action programmes implemented with the use of public spending
(D’Uva, 2017; Postula and Radecka-Moroz, 2020).
The present study aims to contribute to this very recent stream of
literature by analyzing the long-run relationship between per capita
environmental protection expenditure (EPE) and happiness at the Eu­
ropean level. The novelty of the paper is twofold. First, as far as we
know, this is one of the first attempts to explore the relationship between
EPE and well-being in European countries. Previous contributions tested
only for the presence of citizens and industrial lobbies on EPE (D’Uva,
2017) and focused mostly on the effects of environmental protection
expenditure on indicators of environmental pollution (Postula and
Radecka-Moroz, 2020). At the same time, earlier researches on the
possible relationship between people’s happiness and the quality of the
natural environment explored the role of environmental factors such as
air pollution (Welsch, 2006; Song et al., 2019a), subjective air pollution
(Yuan et al., 2018; Song et al., 2020), haze pollution (Song et al., 2019b)
land cover and climate (Krekel and MacKerron, 2020), but did not
consider the specific impact of government fiscal policy in the form of
EPE in Europe. The rationale of the study lies in the need to evaluate
public expenditure on environmental protection in terms of its impact
on happiness. This is an important issue that needs to be spelt out in
order to compare the effectiveness of implemented fiscal measures in
tackling environmental issues and to assist policymakers in selecting the
best environmental policy tools to improve quality of the environment
and well-being of the national population, in line with a sustainable
development framework. Secondly, our investigation aims to provide a
snapshot of the phenomenon on a European scale. European countries
are an interesting case study, since both the Maastricht Treaty and the
Amsterdam Treaty some five years later incorporated environmental
protection among the primary targets of the European Union policy-­
makers’ agenda.
The analysis is carried out on a sample of 19 countries in the period
1997–2016. The results suggest the presence of a long-run equilibrium
among happiness, EPE and the unemployment rate: an increase in
2
Environmental Impact Assessment Review 93 (2022) 106704
expenditure on the protection of biodiversity and landscape, together
with pollution abatement measures making the environment more
amenable, increases happiness; the unemployment rate, as a result of
both individual-level and macro-level effects, has a negative impact on
happiness, in line with the literature.
All in all, our results contribute to the academic discussion on the
relationship between environment and happiness by unravelling the
possible role of state intervention. Given the wide range of public policy
instruments, our analysis, by emphasizing the positive effect of EPE on
well-being, suggests possible successful intervention tools to implement
Sustainable Development Goals (SDGs)4 which are proved to be highly
intertwined with subjective well-being (De Neve and Sachs, 2020).
The paper is structured as follows: section 2 reviews the existing
literature; sections 3 and 4 present the data and the descriptive analysis,
respectively; the fifth section describes the methodology and econo­
metric estimation; the econometric results are presented in section 6 and
discussed in the section 7. The robustness of our results is tested in
section 8. Section 9 concludes.
2. Literature review
Since the mid-1970s, and especially in the last two decades, there has
been increasing academic research coupled with strong socio-political
interest in the debate concerning alternative development approaches
which go beyond GDP-centric policies, as the latter do not take into
account other socio-cultural and environmental issues which affect
human well-being beyond pure economic growth. The use of happiness
and well-being indicators provides a new method for evaluating public
policies and related solutions in response to “the emergent crisis of
endless patterns of consumption, deep inequality and resource deple­
tion” (Verma, 2017, p. 477). The UK is the leading country in Europe for
applying the findings of well-being research in public policy. In 2000,
the Local Government Act declared the increasing social, economic and
environmental well-being of their citizens to be an explicit goal of
government policy. In 2007, the EU Commission (with the report Beyond
GDP) and the OECD (World Forum on Statistics, Knowledge and Policy)
recommended going beyond conventional Gross Domestic Product
(GDP), complementing it with economic, social and environmental in­
dicators to better capture citizens’ well-being. Additionally, the United
Nations General Assembly (2011) exhorted Member States to attach
great importance to achieving goals of life satisfaction and well-being
also through appropriate public policies. The interest of policymakers
in happiness and well-being is a consequence of increasing evidence
that, even in the presence of considerable growth in national income,
there has been no corresponding rise in reported levels of well-being.
This phenomenon holds especially for more developed countries with
high per capita income (Diener et al., 1995; Easterlin, 1974 and East­
erlin, 2005; Oswald, 1997). Research increasingly suggests that, rather
than having GDP growth as a primary goal, national governments should
provide the conditions for improving well-being by means of suitable
public goods and services such as health, education, public squares,
parks and the environment. The public goods and services provided and
the way in which such supply takes place may significantly modify cit­
izens’ quality of life. Through the use of happiness and well-being in­
dicators, policy makers may better assess and design public policy,
allocating available resources in the most efficient way possible (Van
Praag and Baarsma, 2004; Dolan, 2008; Deaton, 2008; Diener et al.,
2009; Green, 2011; Helliwell et al., 2012; Layard et al., 2012; Easterlin,
2013; Bennett and Nikolaev, 2017). As “happiness is deeply connected
to people’s relationship with a healthy, vibrant and wholesome natural
environment” (Verma, 2017, p. 482), the policies concerning the
4
The SDGs are a group of policy targets with the purpose to promote envi­
ronmental protection, to stop climate change and world poverty and guarantee
equal access to healthcare and education.
M. Bonasia et al.
conservation of the environment - such as dedicated public environ­
mental expenditure - are believed to deeply affect well-being and life
satisfaction.
The linkage between happiness and the environment has been
extensively debated in the recent literature. Maddison et al. (2020)
dedicated an entire book to the topic, which includes both a theoretical
discussion on how environmental concern has influenced studies on
subjective well-being (SWB) especially in the economic literature as well
as individual case studies on how environmental quality and natural
characteristics affect happiness. Earlier research on how environment
affects people’s well-being is amply surveyed in Krekel and MacKerron
(2020) who explain that academic interest has been two-fold: “first,
there has been a genuine interest in how the environment affects peo­
ple’s subjective well-being. Second, there is a growing interest in how
pro-environmental behavior affects people’s subjective well-being, and
in turn, how people’s emotional states can be effectively leveraged to
nudge them into behaving in more environmentally friendly ways”
(Krekel and MacKerron, 2020, p. 97). The same authors, using both
macro and micro models, evidence the strength of the impact exerted by
natural environmental quality (whether in the form of air pollution, land
cover or climate) on happiness, stimulating future works on the topic,
given the “variety of routes and mechanisms by which this impact is felt”
(Krekel and MacKerron, 2020, p. 107). Furthermore, De Neve and Sachs
(2020) explored the relationship between sustainable development and
SWB which is valued with respect to the benchmark of Sustainable
Development Goals (SDGs). The authors used the SDGs Index as a
measure of countries’ progress in achieving the SDGs and the SWB index
from the Gallup World Poll to capture levels of happiness. They found
that the relationship between SDGs and SWB is not straightforward as its
shape and strength vary across regions, emphasizing the need for
differentiated policies when improving the 2030 EU Agenda.
To the best of our knowledge, the relationship between well-being
and the environmental protection spending in the long run, from an
econometric point of view, has not been specifically analyzed elsewhere
for Europe. Flavin et al. (2014), indeed, analyzed the impact of welfare
spending on subjective well-being in OECD countries using OLS, while
Flavin (2019) tested for the impact of total public goods spending on
happiness in American states, through an ordered probit estimation.
Recent studies concerned with the impact of environmental regulation
on subjective well-being in China (Song et al., 2019. Guo et al., 2020).
Song et al. (2019) consider three environmental regulations: a)
command-and-control regulations-laws, regulations and policies aiming
to encourage polluters to better protect the environment; b) market-
based regulations, instruments such as taxes, subsidies, and deposit re­
funds to stimulate enterprises to adopt environmental friendly produc­
tion technologies, c) informal regulations linked to the behavior of social
groups about environmental problems. The authors, through an ordered
probit model, tested for the presence of linear and non-linear relation­
ships between environmental regulations and well-being in different
regions of China. As a measure of well-being, they used data of the 2015
Chinese General Social Survey. Their results show different impacts of
the three regulations in the eastern, central region, and western regions
suggesting the government to develop environmental regulations also
based on local conditions. Guo et al. (2020) also investigated the rela­
tionship between environmental governance on happiness, using three
kinds of environmental regulation: the governmental expenditure in
environmental governance, environmental regulations and norms that
must be observed by the polluters to protect the environment and su­
pervised environmental regulations. As a measure of happiness, the
authors employed data from the Chinese General Social Survey.
Econometric results obtained through OLS and an order probit model,
highlight the presence of a positive and linear relationship between
government investment and happiness; legal environmental regulation
appeared to be neutral with happiness while public awareness is nega­
tively correlated with citizens’ happiness.
A further innovative aspect of our study is represented by the use of
3
Environmental Impact Assessment Review 93 (2022) 106704
an econometric methodology that allow us to perform a long run anal­
ysis. The central point of environmental strategies is to combine envi­
ronmental policies with those of the various economic sectors
(agriculture, energy, transport) and with the needs of development,
social well-being and employment. Naturally, such strategies have re­
percussions in the long run. Similarly, happiness at a macro-economic
level is observable mainly in the long run when external elements, for
instance, environmental policies express their effects, hence the
importance of investigating this relationship. Some scholars have stud­
ied the influence of air pollution (Welsch, 2002 and Welsch, 2006),
airport noise (Van Praag and Baarsma, 2004), and climate change
(Rehdanz and Maddison, 2005; Sekulova and van den Bergh, 2013) on
happiness and well-being indicators. Welsch (2002) examines the trade-
off between prosperity and environmental quality, using measures of
individual well-being. He uses cross-section data for 54 countries taken
from the World Database of Happiness (Veenhoven, 2001) to analyze the
relationship between air pollution, happiness and prosperity. The author
finds that urban air pollution has an impact that can be measured in
monetary terms. This means that a citizen needs to be compensated for
accepting an increase in air pollution in his/her country. Moreover,
happiness and well-being indicators have been used as tools to under­
stand how sensitivity to environmental phenomena can influence sub­
jective well-being. Menz and Welsch (2010), using data across 25 OECD
countries obtained from the World Values Survey Series, find that higher
PM10 concentrations are related to reduced life satisfaction. Re­
searchers in the field of ecological economics would be well advised to
study the influence of environmental protection spending on happiness
and well-being. Environmental policy may, indeed, represent an in­
strument for policymakers to enhance the support of citizens.
3. Data
As a measure of happiness, we employed the annual Happiness Index
(HAP) from Veenhoven’s (2013) World Database of Happiness, which
represents the dependent variable of the model. This index is built on the
basis of the survey question: ‘How satisfied are you with the life you
live?’ The responses are ordered from 1 (not satisfied) to 4 (very satis­
fied) and converted by Veenhoven into an interval from 0 to 10. We
preferred this database to the Eurobarometer survey due to its unvarying
time series span across countries.
Per capita environmental protection expenditure (EPE) and the
variable unemployment (UN), defined as the ratio between the level of
unemployment and the active population (16–64), are considered as
explanatory variables and are extracted from Eurostat. All variables are
in logarithms. EPE follows the Classification of the Functions of Gov­
ernment (COFOG) that divides government expenditure into ten main
categories (‘COFOG I level’): general public services, defense, public
order and safety, economic affairs, environmental protection, housing
and community affairs, health, recreation, culture and religion, educa­
tion and social protection. EPE comprises all the interventions directly
related to the prevention, abatement and elimination of pollution or any
other environmental damage. We expect a positive impact of EPE on the
Happiness Index, given that an increase in expenditure that prevents
environmental degradation may enhance the quality of life and hence
the level of happiness.
The effect of the unemployment rate on HAP is the result of two
different effects. The first is an individual level impact: any direct
experience of unemployment affects individual happiness negatively.
The second is a macro-level effect. A change in the unemployment rate
at macro-level could influence happiness through two mechanisms.
First, an increase in the unemployment rate directly affects happiness of
citizens adversely. Second, an increase in macro-level unemployment
raises the fear itself of unemployment, thereby possibly impacting on the
employed and inducing a general lower level of happiness. As a conse­
quence, we should expect a negative sign of the UN coefficient (Clark
and Oswald, 1994; Di Tella et al., 2001; Scoppa and Ponzo, 2008;
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

Wolfers, 2003; Clark, 2006; Ohtake, 2012).

The sample data comprise 19 European countries, namely Austria,
Belgium, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Lithuania, Luxembourg, the Netherlands,
Poland, Portugal, Romania, Spain and Sweden observed in the time-
period 1997–2019. The selection of the sample period was essentially
driven by the need to analyze the relationship between happiness and
environmental variables after the substantial changes occurring in 1997
in European environmental legislation. Since the Maastricht Treaty of
the European Union, the concept of sustainable development has been
enshrined in EU legislation. According to Article 130(2), “environmental
protection requirements must be integrated into the definition and imple­
mentation of other Community policies”. Most importantly, European
environmental competences were further expanded with the Amsterdam
Treaty of 1997 and became one of the main aims of the European Union.

4. Happiness and environment across Europe Fig. 2. Map of European environmental protection expenditure in 1997.

The time pattern of the Happiness Index is presented in Fig. 1. The
happiest people in 2019 were in Denmark (index value of 8.50), while
the minimum value of the index (3.71) was recorded in Romania in
1999. There is evidence of consistently high index values in Scandina­
vian countries together with Netherlands. Lithuania, France, Germany
and Estonia show an increasing trend. Greece has clearly suffered from
the effects of the crisis, with the Happiness Index of its citizens sharply
decreasing, together with that of Hungary. The trend in Poland is fluc­
tuating while Portugal showed an evident downturn in 2012 (4.15). But
it bounced back up to record levels in 2019.
Figs. 2 and 3report a snapshot of our main explanatory variable, EPE,
in 1997 and 2019, respectively.
On comparing the maps, the great difference in per capita average
environmental expenditure is evident, more than doubling by the end of
the sample period (from 118.54 to 253.92 euro per person). In 1997
while annual per capita spending in Romania and Lithuania was only
around €3.5, Luxembourg allocated to the environment € 527.7 per
person. In 2019, even if Romania has increased its environmental
expenditure (€ 83.4 per person), it remains at the bottom of the list of
countries together with Poland, Hungary and Lithuania that shows the
minimum value of the year (€ 62,2). The maps show that the countries
that were at the top of the list at the beginning of the period have
maintained their ranking by increasing relevant expenditure accord­
ingly. In 2019, Luxembourg continued to allocate the most to the
environment (€946.58 per person). The case of Greece is interesting:
despite the crisis, it has recorded a significant rise in EPE (from €42.79 in

Fig. 1. The Happiness Index over time 1997–2019.

4
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

Fig. 3. Map of European environmental protection expenditure in 2019.
1997 to €233.85 per capita in 2019). The underlying idea of this paper is
that living in an amenable environment contributes to increase the
happiness level of individuals. This is supported by Fig. 4, which sug­
gests a direct relationship between government environmental expen­
diture and happiness in 1997, at the beginning of the sample period. The
happiest countries were in Northern Europe while Lithuania and
Romania had both the lowest environmental protection expenditure and
happiness. The Netherlands and Luxembourg presented high levels of
government EPE and HAP, both countries experiencing a boost in
environmental policy action in the 1990s (Gilpin, 1995). The same
direct linkage between EPE and HAP continues in 2019, as suggested by
Fig. 5. The happiest countries are again in Northern Europe with the
addition of some continental countries, namely Austria and Germany
(both scoring 7.2) and Estonia which recorded a marked improvement,
increasing from 5.93 in 1997 to 7.52 in 2019. Hungary and Greece, as
highlighted above, presented a huge negative percentage variation in
the HAP score (− 10% and − 12%, respectively.)
5. Methodology and econometric estimation
Empirical implementation of a long-run relationship between envi­
ronmental protection spending and happiness poses two main problems.
First, given the imperfections in regional markets, the relationship does
not materialize at any time but through a process of gradual adjustment
over the long term. Hence, from the empirical perspective, this short-run
Denmark
8
Fig. 5. Per capita government environmental protection expenditure and
happiness in 2019.
adjustment process could bias the equilibrium model in the long run.
Second, it is realistic to assume a divergence among countries in the
markets and factors that govern short-term dynamics. Since these dis­
parities can also emerge in the values of the coefficients characterizing
the long-term equilibrium, then we should also consider the heteroge­
neity of the parameters among the countries.
In this paper, we analyze the role of environmental expenditure on
happiness, from an empirical viewpoint, adopting first the advanced
dynamic panel heterogeneity methodology presented by Pesaran et al.
(1999). An autoregressive distributed lag (ARDL) model is used, where
the estimates are controlled by three different estimators: the dynamic
fixed effect (DFE), the mean group (MG) and the pooled mean group
(PMG) estimators. These three methodologies enable us to examine the
short- and long-term effects of environmental spending on happiness
and to consider the country-specific heterogeneity concern. When using
the DFE estimator, the long-run and the short-run coefficients are con­
strained to be equal across groups while the intercept can differ across
countries. When there is a large cross-country dimension, we can esti­
mate the mean of short- and long-run coefficients across countries by the
mean group (MG) estimator (Pesaran et al., 1996). In a transitional
position between the DFE and the MG, we have the PMG estimator
where short-run coefficients are permitted to vary across groups,
whereas long-run parameters are controlled to be equal (Pesaran,
1997and Pesaran et al., 1999). Our empirical samples have a roughly
similar magnitude in time and cross-sections. For the empirical analysis,
we use the three estimators and test which is preferred among them. The
Hausman test is carried out to compare efficiency and consistency
among DFE, MG and PMG estimates: the Hausman test (a) compares

Sweden Netherlands PMG and MG estimators, while the Hausman test (b) compares PMG and
DFE.
Ireland Luxembourg

Poland Finland
Following Pesaran et al. (1999), the model is an autoregressive
7

Hungary
Austria distributive lag (ARDL) (p,q) dynamic panel:
Belgium
Spain p q
∑ ∑
HAP

Italy HAPi,t = αi + λi,j HAPi,t− j + βi,j Xi,t− j + εi,t (1)

6

Estonia FranceGermany
Greece j=1 j=0
Portugal
where Hapi,t is the level of happiness in country i at time t, αi is the
country-specific effect, and Xi,t is the vector of explanatory variables, in
5

Lithuania
our case EPE and UN. The aim is to test the existence of a long-run
Romania
equilibrium between Hapi,t and Xi,t along with short-run dynamics and
deviation from the equilibrium. If the variables are I(1) and cointe­
4

0 100 200 300

EPE (euro)
400 500
grated, then the error term is an I(0) process for all i. It is then usual to
reparametrize the equation above into the following error correction
equation:
Fig. 4. Per capita government environmental protection expenditure and
happiness in 1997.

5
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

p− 1
∑ q− 1
∑ ( ) Table 2
ΔHAPi,t = αi + λi,j ΔHAPi,t− j + βi,j ΔXi,t− j + ϕi εi,t− 1 + μi,t (2) Results of first-generation panel unit root tests.
j=1 j=0
Method At level First difference

where Δ is the first differences operator and Φi is the country-specific Levin and Lin, (2002) t*- Statistics
error correction speed of the adjustment term. If a long-run effect with 1 HAPi t − 1.597 − 2.98*
2 EPEi t − 4.333** − 7.159**
a stable adjustment exists, then the parameter Φi is expected to be
3 UN i t 1.082 − 7.45**
significantly negative. If Φi = 0, there is no long-run relationship.
According to Demetriades and Law (2006), Eq. (2) can be estimated Im et al. (2003) W-Statistics
1 HAPi t − 0.616 − 9.65**
using the above three different estimators, considering that the long-run
2 EPEi t − 1.842 − 10.05**
equilibrium and the heterogeneity of the dynamic adjustment process is 3 UN i t 0.291 − 7.48**
processed by maximum likelihood. As a final point, we apply the
Maddala and Wu (1999) and Choi (2001)
Hausman test to check whether there are noteworthy differences among ADF-Fisher Chi-square
the above estimators. 1 HAPi t 41.11 163.1**
2 EPEi t 63.89 258.4**
6. Results 3 UN i t 31.5 125.6**
PP-Fisher Chi-square
1 HAPi t 45.83 479.8**
In this section we discuss the econometric estimation results. The 2 EPEi t 35.76 256.1**
first step is to test for the presence of cross-sectional dependence. This 3 UN i t 34.16 88.85**
type of correlation can result from common global shocks which can
** and * reject the null at 1%, and 5%.
have different effects across countries. As regards potential cross-
sectional dependence, we used both first- and second-generation unit
root tests to shed light on the findings. Among various second- Table 3
generation tests, we used the CD test proposed by Pesaran (2007). Pesaran CIPS test results.
Table 1 shows that all the variables present cross-sectional depen­ Method CIPS-test
dence. This implies the existence of some correlations among the
Pesaran CIPS test (2007) Level
countries in question. The unit root tests for the series of EPE, HAP and
1 HAPi t − 1.985
UN are presented in Table 2. The tests in question were performed in 2 EPEi t − 2.287
order to check the level of integration. HAP and UN are not stationary in 3 UNi t − 1.795
level but they are stationary in their first differences and are thus inte­ Pesaran CIPS test (2007) 1st Diff.
grated of order one I ~ (1). For the variable EPE three out of four sta­ 1 HAPi t − 4.72 ***
tionary tests show that the variable is also integrated of order one. 2 EPEi t − 4.39 ***
However, since the model has cross-sectional dependence, we cannot 3 UN i t − 2.108*
use only the standard first-generation tests to check for a panel unit root Critical values at − 2.1 (10%), − 2.21(5%), − 2.4 (1%); *,
because it could increase the probability of the presence of a spurious **, and *** represent significance at the 1, 5, and 10%
unit root. Hence, to overcome this problem, Pesaran suggested the CIPS level, respectively.
test for the unit root test in the presence of heterogeneous cross-sectional
dependence. sectional dependency, tests like those of Pedroni and Kao could raise the
As presented in Table 3, in the CIPS test, together with the selected possibility of having spurious cointegration results. Thus, we test coin­
average lag lengths of 2, the results show that our prior classification tegration directly by using the Westerlund5 four cointegration tests: Gt,
regarding the order of integration of the series still holds if we also ac­ Ga, Pt, and Pa, for panel data.6
count for cross-sectional dependencies. These results, together with the The results in Table 4 reject (with bootstrapping of 100) the hy­
uniform results obtained from the tests in Table 2, suggest that the pothesis that the series are not cointegrated. These results show that
classification is robust. Johansen (1995) and Phillips and Hansen (1990) when cross-sectional dependences are taken into account, the tests reject
showed that long-run interactions occur only if there is cointegration the null of no cointegration for three out of four tests. Hence, they
among stationary variables. Despite the fact that panel ARDL can be indicate that the variables are cointegration and there is a long-run
implemented irrespective of whether the variables under study are I(0) relationship between them. It is then possible to estimate the model in
or I(1) (Pesaran and Shin (1999), the variables of our model are all in­
tegrated of order one. However, since we tested for the presence of cross- Table 4
Westerlund cointegration tests results.
No. of observations included: 373
Table 1
Pesaran cross-sectional dependence test. Statistic Dependent variable Value z-statistic Prob. Prob. Robust P

Method CD test p-value Gt − 2.282 − 1.171 0.121 0.040

Ga − 4.082 3.702 0.657 0.140
Pesaran CD test (2007) Pt − 6.632 3.702 1.000 0.030
1 HAPi t 7.21 0.000 Pa − 3.343 4.607 1.000 0.020
2 EPEi t 40.025 0.000
3 UNi t 11.92 0.000 H0: no cointegration.

The null hypothesis: no cross-sectional dependence. All variables are in

logarithms.

5
The rejection of the null of Ga and Gt indicates the cointegration of at least
one of the cross-sectional units; rejection of the null of Pa and Pt suggests the
cointegration for the panel as a whole.
6
Robust P is obtained by applying the bootstrap approach (with 100 repli­
cations) to remove the effects of cross-sectional dependence on the tests.

6
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

its error correction form (Eq. 2). The three estimation results are pre­
sented in Table 5.
The Hausman test (a) checks the difference in the coefficients of MG
and PMG and shows that PMG is the best choice. The Hausman test (b)
compares PMG estimator with DFE and clearly indicates that the DFE
estimator is the best choice. As a consequence, the comparative effi­
ciency and consistency of the DFE model is higher with respect to the
PMG and MG estimators. Thus, the DFE model fits the data better. As
regards the coefficient estimates, the first result that emerges is that the
error correction term is highly significant and negative in all the models,
implying a long-run equilibrium between happiness, environmental
protection expenditure and the unemployment rate. The long-run co­
efficients of the explanatory variables in the DFE model are strongly
significant and with the expected signs, confirming the presence of a
direct relationship between happiness and environmental protection
spending while the unemployment rate has a significant and negative
impact on happiness.
In the short run, the unemployment rate still has a negative influence
on happiness, as expected, and it is highly statistically significant while
the environmental protection expenditure coefficient is not significant.
The latter result is hardly surprising because the relationship between
government EPE and happiness is primarily a long-run linkage. The
positive and highly significant incidence of environmental spending on
life satisfaction, in the long run, confirms that public intervention aimed
at environmental protection may be a successful backstop against
community dissatisfaction resulting from a deterioration in the quality
of life caused by excessive depletion of environmental resources and
considerable pollution as a byproduct of economic growth-oriented
activities.
7. Discussion
The first result of this analysis, the negative relationship between
unemployment and happiness, is in line with earlier studies (Clark and
Oswald, 1994; Di Tella et al., 2001; Scoppa and Ponzo, 2008; Wolfers,
2003; Clark, 2006; Ohtake, 2012). This outcome may be the result of
both individual-level and macro-level effects: any personal experiences
of unemployment influence individual happiness negatively; at macro
level, the higher is unemployment, the lower is the level of happiness.
Unexpectedly, even for the employed, this relationship applies; a rise in
the unemployment rate increases, among the employed, a fear of un­
employment, which eventually leads to a general lower level of
happiness.
Table 5
Econometric results from MG, PMG and DFE.
Dependent variable: Happiness Index
The second, even more important, result of the empirical analysis is
the positive relationship between happiness and EPE in the long run.
This evidence suggests that, the higher the level of environmental pro­
tection expenditure, the higher the Happiness Index will be. A more
amenable environment in terms of biodiversity and landscape (com­
bined with lower pollution levels) might increase citizens’ happiness.
This finding is in line with previous research indicating a correlation
between well-being and outcomes of environmental policies (Maddison
et al., 2020; Krekel and MacKerron, 2020). More in details, our empirical
study adds new evidence to the very recent stream of literature which
explored the relationship between environmental regulation and
happiness (Song et al., 2019b; Guo et al., 2020). The relevance of
command-and-control regulations on citizens’ wellbeing is, then,
confirmed also outside China, as reveals our econometric analysis on
European data. This result also confirms the important role of fiscal
instruments like public expenditure in mitigating the effects of envi­
ronmental externalities (Postula and Radecka-Moroz, 2020) as well as
the relevance of the protection of the natural environment for citizens’
happiness. In particular, the positive and linear relationship between
government investment and happiness which is found on Chinese data
(Guo et al., 2020) in the long run seems to characterize also European
nations, confirming that its validity goes beyond cultural/social char­
acteristics, or specificities of environmental governance and has become
a supranational issue. This result entails a wider discussion on what are
the best intervention tools to promote a sustainable development path
and simultaneously “solve the environmental pollution and improve
happiness” which is a major challenge of worldwide governments
clearly not limited to the Chinese one (Guo et al., 2020, p. 19485). The
last point appears of particular importance nowadays, given the prob­
lems related to climate change and environmental sustainability (Krekel
and MacKerron, 2020; De Neve and Sachs, 2020).
The growing awareness of this issue is demonstrated by the relevant
financial commitments to the environment manifested by major inter­
national organisations (Krekel and MacKerron, 2020). In particular, the
European Green Deal, launched at the end of 2019, represents one of the
main pillar of the new European growth strategy which aims “to protect,
conserve and enhance the EU’s natural capital, and protect the health
and well-being of citizens from environment-related risks and impacts”
(European Commission, 2019). The centrality of sustainability and cit­
izens’ well-being in the pursuit of economic policy is confirmed along
the document as “the sustainable development goals [are] at the heart of
the EU’s policymaking and action” (European Commission, 2019). This
strategy evidences a clear step change in the European economy and
opens a new scenario where societal goals gained a prominence role in
public intervention. The capacity to reach these goals will depend on
European Countries’ capacity to cooperate and coordinate on this new
growth model.

Variables PMG MG DFE 8. Robustness check

Long-run
EPE t-1 0.056*** 0.005 0.057*** In this section we check the robustness of our results, testing for the
(0.008) (0.032) (0.014)
presence of endogeneity and inverse causality problems. Such problems
Unemp t-1 0.005 0.005 − 0.608**
(0.013) (0.045) (0.027)
arise in all those empirical contexts in which it is difficult to maintain
EC Coefficient − 0.404*** − 0.562*** − 0.265*** that the condition of exogeneity (even in its weakest version) holds. In
(0.061) (0.065) (0.034) the latter case OLS estimators become inconsistent.
Short-run Three major threats to the internal validity of the model of regression
ΔEPE 0.031 0.029 0.006 are: 1) error from omitted variable which is correlated with X but, not
(0.019) (0.025) (0.009) being observable, it cannot be included in the regression; 2) error due to
ΔUnemp − 0.070*** − 0.090*** − 0.072*** simultaneous causality (X determines Y, Y determines X); 3) errors in
(0.025) (0.032) (0.014)
Intercept 0.646*** 0.996*** 0.452***
variables (X is measured with error - error of measure). Running a
(0.100) (0.126) (0.071) regression with instrumental variables can eliminate the error from
Hausman Test(a) 2.67 [0.262] these three sources. As regards our case the use of EPE (Table 5) and, to
Hausman Test(b) 8.12 [0.017] some extent, UN, is likely to produce endogeneity problems that can
Note: Standard errors are in parentheses. mainly arise from reverse causality and omitted variables. The index
***, **,* reject the null at 1%, 5% and 10%, respectively. selected can, indeed, include factors that have been omitted from the
Hausman test: PMG is efficient under Ho (probability in square brackets). regression. Furthermore, data referring to structural indicators,

7
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

especially those used for the construction of the EPE, could be affected Table 6
by measurement errors. Econometric results from Panel IV.
To obtain a double check on the results presented in Table 5 that Dependent variable: Happiness Index
could not be affected by endogeneity, we use an alternative econometric
Variables FE RE
method. We adopted an instrumental variable (IV) strategy where the EPE t-1 0.0246 *** 0.0307***
indexes assessing the lagged independent variables are used as in­ (0.009547) (0.01078)
struments. The instruments should affect the dependent variables only Unemp t-1 − 0.0674*** − 0.06841**
indirectly, namely through their correlation with the variables identified (0.0210) (0.02125)

as endogenous. Indeed, the instrumental variables show a low correla­ Wald Test (χ2) 21.75 10.36
tion with the independent variables and a stronger correlation with the [0.000] [0.001]
instrumented variables. IV estimation proceeded as follows. We pooled R2 within = 0.1869 within = 0.1866
our panel and estimated two IV models fixed and random-effects with between = 0.1166 between = 0.1550
heteroscedasticity-robust and panel-corrected standard errors. The overall = 0.1471 overall = 0.1747

regression is estimated by using the dependent variable “Happiness”.

Note: Standard errors are in parentheses.
Table 6 shows the panel IV results for specifications (fixed and
***, **,* reject the null at 1%, 5% and 10%, respectively.
random). The first important result we can draw from both groups of Wald Test (probability in square brackets).
regressions is that our analysis holds even once the endogeneity problem
is accounted for. The validity of the instruments is set by the value of the
the 2015 World Happiness Report (Helliwell et al., 2015) happiness
Wald statistic. Moreover, the value of the coefficient of the endogenous
would thus appear to be a suitable measure of social growth and a goal
variable lies within the confidence region obtained after applying the
for policy makers. In evaluating the potential impacts of environmental
conditional likelihood ratio test statistics, supporting the robustness of
spending decisions, policymakers should not overlook the effects on
the results to weak instrument issues. It is worth emphasizing that the
citizens’ well-being. Our research must be interpreted as a further piece
estimation results have a rather high explanatory power, considering
in the puzzle of the human-environment relationship (Breslow et al.,
that all the coefficients are statistically significant and have the expected
2016) which confirms that this interdependence is a long-lasting one
signs. Of the two models, the FE has slightly more explanatory power. A
which requires policymakers to adjust their policy accordingly, hope­
comparison of the results obtained in Table 5 regarding the role of EPE
fully avoiding simpler (or cheaper) but short-sighted solutions.
and UN on Happiness is substantially confirmed with the panel IV
Furthermore, our study highlights the importance of planning and
analysis for the signs of the coefficients with differences in magnitudes
programming public expenditure on environmental protection. Public
for EPE and unemployment.
environmental expenditure may indeed represent a powerful instrument
To sum up, from panel DFE and Panel IV estimations, the effect of
to achieve the Sustainable Development Goals, part of the broader 2030
environmental expenses undertaken by the two specifications has
EU Agenda, and then ameliorate subjective well-being.
remained very nearly unchanged while the unemployment effect has
However, in evaluating the effects of public spending, it is crucial to
reduced in magnitude. Therefore, these outcomes confirm the robust­
take into account the social costs borne by a community and required to
ness of our previous results underlying the major role of public envi­
finance such expenses. It would thus be interesting to analyze the impact
ronmental policies on happiness at the European level.
of net environmental expenditure on well-being. However, to do so, it
would be necessary to have data on social costs that are directly related
9. Conclusions
to financing environmental policy. Unfortunately, it is not possible to
extrapolate such costs in the national budget items for all the countries
The economic literature has amply highlighted the limits and prob­
in question, partly because of the different environmental legislation in
lems that emerge with the use of income growth as an indicator of
force. This aspect would be an interesting step forward in our analysis if
quality of life, thereby posing some challenging questions to economists.
such data were to become available.
The use of income growth as an indicator of the quality of life of a
community suggests that citizens living in the richest countries are not
always the happiest (Easterlin, 1974 and Easterlin, 1995; (Frey and Funding
Stutzer, 2002); Castriota, 2006; Brockmann et al., 2009; Veenhoven,
2010). The goal of economic growth should not be an end in itself but University of Naples “Parthenope” financed this work within the
rather a means to improve quality of life and well-being. Competitive Research Project: “Institutional and Economic Imbalances
Environmental factors have played and will continue to play an in the Eurozone and the European Union”.
important role in affecting human well-being. As a consequence, also the
actions that policymakers can take to protect the environment, by Conflict of interests
enabling society to achieve a healthy environment goal, may influence
the well-being of a community. The question that arises is whether None.
public spending on environmental protection, by improving the social
quality of life, could also improve the level of happiness in the long-run. Credit statement
To answer this question, this paper explored the long-run relationship
between environmental protection expenditure and happiness at the Mariangela Bonasia: Conceptualization, Data collection, Redaction
European level. of the text, Editing. Oreste Napolitano: Data collection and curation,
The results confirmed that public spending in the environmental Methodology, Software, Redaction of the text. Marcella D’Uva:
field can be an important instrument to improve well-being. An increase Econometric Investigation, Validation, Redaction of the text, Reviewing
in expenditure on environmental protection can ameliorate the living and Editing. Elina De Simone: Supervision, Validation, Redaction of the
conditions of citizens and hence increase happiness. In line with the text, Reviewing.
literature, greater protection of biodiversity and landscape together with
pollution abatement measures makes the environment more amenable
and thus affects positively on happiness. The linkage between unem­ Declaration of Competing Interest
ployment and happiness is, instead, inverse as suggested by the litera­
ture, but has a negative impact only in the short run. In accordance with None.

8
M. Bonasia et al. Environmental Impact Assessment Review 93 (2022) 106704

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