Happiness inequality:

Are equal societies happier?

Professor João Valle e Azevedo

Teacher Sónia Félix

Filipe Ribeiro Ferreira, nº 39276

Luís Pinto Coelho, nº 28858

Rita Mira Vaz, nº 32041

Introduction

Over the last years, a lot of research has been made aiming to develop more accurate and
complete measures of well-being. In two distinct fields, economists found that 1) wealth
is not evenly distributed across societies nor within each society and that 2) GDP was not
the greatest indicator of a society's welfare.

On one hand, it is now broadly established that it is possible to improve upon the GDP
when measuring well-being. The first steps taken involved developing the HDI (Human
Development Index), which although still widely used, lacks some important features
such as the mental health of the population. Hence, the index that most accurately allows
for this kind of research is the Happiness Index, developed and deeply studied by The
Happiness Research Institute, in Denmark. Every year, this institute releases its Report
on World Happiness, in which, every time, the Nordic countries top the happiness rank.

On the other hand, Corrado Gini made the community a favour by developing his index
and claiming that there were real implications of economic inequality, thereby raising
awareness, discussion, and policy intervention on the subject.

The purpose of this study is to tie together the above-mentioned ideas. With the economic
intuition that one thing is an average, but the way it is distributed is a totally different
thing, we further debate on how the inequality that prevails in a society (not only the
economic, but also in the aspects that affect the well-being) has an effect in the happiness
of the society as whole. Particularly, we will try to answer the question: Are equal
societies happier?

This work is motivated by the analysis of the Happiness Equality Index Europe 2015, a
publication of The Happiness Research Institute. In order to expand the research to more
countries, we moved away from the index developed in the publication, and instead tried
to find variables that explain inequality in a society.

Literature Review

The discussion about happiness is not new, nor the struggle in defining it. It has been the
subject of many philosophers’ writings for centuries. «Happiness is the best, noblest, and
most pleasant thing in the world», said Aristotle, who understood moral virtues as the
way of reaching it.

In a very different society, more than two millennia later, the World Happiness Report
(WHR) tries to measure happiness as a self-perceived well-being and fulfilment, setting a
range of variables that most contribute to it. GDP per capita, social support, healthy life
expectancy, freedom to make life choices, generosity and perceptions of corruption are
the indicators that take part in explaining the happiness index. Qualitatively, the
conclusions are not surprising: «The report found that people in the happiest countries
have a higher per capita gross domestic product (GDP); live longer, healthier lives; have
more social support; have freedom to make life choices; and experience less corruption,
more generosity, and more equality of happiness», says an article from The Christian
Science Monitor, commenting on the WHR of 2016.
Aside from the economic and social indicators, some studies focus on emotions and
feelings to grasp the picture of happiness worldwide. The Gallup Global Emotions Report
is an example of these studies: it makes surveys with questions such as «Did you smile
or laugh a lot yesterday? Did you learn or do something interesting yesterday?», to assess
an index of emotional experience.

Following the same line of thought, a 2005 paper by Blanchflower and Oswald also
defends that «methodologically, happiness data, if carefully constructed, are intrinsically
more appropriate as an indicator of a nation’s mental well-being than any mechanical
indicator such as an HDI-style index. Emotion surely ought to play a role in a measure of
human well-being. Yet currently not enough is known to be sure how well-being data can
supplement or supplant the Human Development Index».

Regarding inequality, we found that even the happiest countries (according to the WHR)
show large discrepancies: «The researchers behind In the Shadow of Happiness looked at
data collected across five years between 2012-2016 to try and build a better picture of the
so-called "happiness superpowers". [...] It found that in total 12.3% of people living in
the Nordic region said they were struggling or suffering, with 13.5% of young people
ranking themselves as such. […] The report notes that in Finland, which ranked as the
happiest world country in 2018, suicide was responsible for a third of all deaths among
the age bracket».

However, we are interested in knowing whether inequality can actually be a source of

unhappiness. This does not only make sense intuitively, as it is consistent with studies
made in this field. A paper wrote by Philipp Lepenies, in 2012, called Happiness and
Inequality: Insights into a Difficult Relationship – and Possible Political Implications,
states: «If one political goal is to foster happiness, it would seem useful to tackle the
reasons for unhappiness and to lessen the negative effects of “comparison”. Happiness
results from the difference between aspiration and attainment. Yet, as long as the
aspirations are constantly reset towards ever unattainable goals and towards the emulation
of the upper echelons of society, happiness becomes unattainable if social inequalities are
too pronounced.»

There seems to be a consensus among researchers on the role of inequality over

happiness; nevertheless, the weight of income inequality has been frequently questioned.
«Empirical evidence on the relation between income inequality and subjective well-being
is equally controversial», says Paolo Verme (2007). A paper called The Drivers of
Happiness Inequality: Suggestions for Promoting Social Cohesion corroborates,
highlighting the effects of education and labour market variables (Becchetti, Massari,
Naticchioni; 2013).

Empirical Model and Data

Our data was collected from several databases. The dependent variable, the happiness
index, was taken from the World Happiness Report of 2020; all the other variables were
given by the World Bank, except the data for corruption, which we got from Transparency
International. One of our main difficulties was finding values for the largest possible
number of countries, for each indicator, and making those countries coincide across
variables. In the end, the population of our sample consisted of 67 countries from all over
the world. Concerning the time period, all values refer to recent years: 2016-19 (no
indicator shows such variability that would raise a problem in using data with a three-
year difference).

According to our objective of explaining the role of inequality on each country’s

happiness, the dependent variable we chose is the HappinessIndex. The WHR develops
an index ranging from 0 to 10 (where 10 is the maximum happiness) for each year, taking
as explanatory variables the ones mentioned on the Literature Review. Their model shows
that a large share of the happiness score is explained by GDP per capita and social support;
the other variables have relatively little weight in explaining the countries’ happiness.

The explanatory variables we chose follow the same logic as the ones chosen by the WHR.
However, while they chose indicators that represent an average for each country, we were
concerned in observing the inequality within each country, with respect to each regressor.

First, we considered that the most important measure of inequality should be the Gini
coefficient (ranging between 0 and 1). This is based on both intuition and the fact that
GDP per capita is the most important variable of the WHR model. As explained before,
our attempt was to use measures that were not country averages; thus, instead of
accounting for income per person, this indicator accounts for the inequality of income
across the population of a country. The regressor Gini is the first variable of our model,
with an expected strong correlation and a negative coefficient – intuitively, the higher the
Gini coefficient (more inequality), the lower the happiness index.

The second variable that we used measures unemployment, as a percentage of total labour
force. Despite not being an index as Gini, we thought that it might capture inequality in
the labour market. This intuition was mainly based on the 2013 paper quoted earlier,
which mentioned labour market variables as important factors that determine inequality.
The coefficient is expected to be negative, as more unemployment should mean more
inequality and, therefore, less happiness.

Furthermore, we included a measure for education inequality: EducGap. This is one of

the indicators where more difficulties came up. We figured that it would make sense to
calculate a difference between the best and worst students (whether in percentage or in
grade terms); for that purpose, it seemed appropriate to use the results of the PISA test.
However, that measure left us with very few countries to regress our model, whereby we
decided to use the difference between secondary and primary school enrolments (in
percentage), in order to capture the difference in level of education. In some cases, this
value was negative, which, of course, does not mean that students are enrolled in
secondary school without completing the primary education (it could be, for example,
that in 2018, there were more people with 15-18 years than with 6-10, in a given country).
For that reason, we used absolute values. Given the surprisingly high p-value of this
variable, we tried to substitute it for another one: effective transition rate from primary to
lower secondary general education, in percentage. Since this one gave us worse results –
the p-value was higher, not only for education, but for other variables as well, and the
adjusted R actually decreased – we decided to keep the first one. Aside from the p-value,
2

the bigger issue concerned the sign of the coefficient, which was positive, against our
expectations and basic intuition. We had anticipated a negative coefficient: larger gaps
mean higher inequality, hence lower happiness index. Excluding this variable from the
model was not an option, for it is coherent with many studies we found, aside from
making sense, intuitively. Therefore, we decided to keep it in our model regardless of the
positive coefficient and high p-value. Unfortunately, we were not able to find a better
indicator, one that captured the education inequality with more accuracy.

The fourth variable concerns corruption. Transparency International defines its indicator
as follows: «The Corruption Perceptions Index ranks 180 countries and territories by their
perceived levels of public sector corruption, according to experts and business people».
It also states that corruption tends to be related with income: this means that it is probably
related with our economic indicators. In fact, all our variables are most likely related with
each other. This one, in particular, is very similar to the one used by the WHR, although
we used a different database. It is important, however, to notice how this index works: a
higher value means lower corruption; this will be important when interpreting the
coefficient. We expected a high statistical significance for this variable, and the model
confirmed it.

We also intended to control for health inequality. The most appropriate indicator that we
found was the GovHealthExp, to account for the percentage of health expenditure covered
by the government. Our intuition was that a higher percentage of government contribution
means a higher equality in access to public health. The results were not splendid in terms
of statistical significance, which led us to try another indicator: the percentage of children
vaccinated against measles. Here, as well, the results were worse; therefore, we returned
to the previous variable. Moreover, the percentage of government expenditures also
controls – to some extent – for another important feature: social support; we will come
back to this issue later on.

Finally, our base model controls for housing conditions inequality. Our initial indicator
was the percentage of the population living in slums. It seemed a good measure for
inequality because slums represent a drastic deficiency in habitation conditions.
Nonetheless, there were missing values for many countries; one solution we came up with
was assuming a zero value for developed countries. Still, not only that might be
inaccurate, as there were many countries that left us in doubt. Hence, we chose to use a
different indicator, following the same reasoning: ElectAccess, the percentage of the
population with access to electricity. We expected this variable to have a positive
coefficient, meaning that a big percentage of the population with access to electricity is a
sign of low inequality and more happiness.

Thus, our initial model was the following:

𝑯𝒂𝒑𝒑𝒊𝒏𝒆𝒔𝒔𝑰𝒏𝒅𝒆𝒙𝒊
= 𝜷𝟎 + 𝜷𝟏𝑮𝒊𝒏𝒊𝒊 + 𝜷𝟐𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒊 + 𝜷𝟑𝑬𝒅𝒖𝒄𝑮𝒂𝒑𝒊
+ 𝜷𝟒𝑪𝒐𝒓𝒓𝒖𝒑𝒕𝒊𝒐𝒏𝒊 + 𝜷𝟓𝑮𝒐𝒗𝑯𝒆𝒂𝒍𝒕𝒉𝑬𝒙𝒑𝒊 + 𝜷𝟔𝑬𝒍𝒆𝒄𝒕𝑨𝒄𝒄𝒆𝒔𝒔𝒊 + 𝒖𝒊

where i denotes each country.

We shall now discuss the adaptations we made to our model and its evolution towards its
final version.

One important aspect we tried to control for was leisure, but it was difficult to find an
indicator that measured its inequality. After some research, we came up with the variable
number of cinemas per 100,000 hab. The reasoning behind this indicator was that cinema
is, among the paid leisure activities, one of the most common and cheap ones.
Furthermore, it is not a product that each individual consumes in large amounts – there
are only so many times you go to the cinema in a week – so we can make an
approximation to the number of people who go to the cinema from the amount of cinema
tickets sold. It could measure inequality in the sense that in an equal society it is more
likely that almost all the population is given the opportunity of enjoying this kind of cheap
leisure activities. Besides increasing the other variables’ p-values and not increasing the
adjusted 𝑅 2 significantly, the p-value of cinemas was 0.44. Our decision was to remove
this variable: we were not able to capture leisure inequality.

We also considered a variable for social inequality: international migration stock, in

percentage of the population. Based on the reasoning that a country with a larger share of
immigrants would be more unequal, from the cultural point of view, this variable did not
help explaining our dependent variable (the adjusted 𝑅 2 remained the same) and was
statistically insignificant (the p-value was 0.28). Since it did not have any literature
support, nor a strong intuition behind it, we did not include it on the model either.

The paper by Becchetti, Massari and Naticchioni quoted in the section Literature Review
suggests a decreasing effect of income inequality on happiness. To control for that effect,
we included in our model the quadratic variable Gini_sq, which we expected to have a
negative coefficient. We shall discuss further the implications of this variable in the
section Results.

Finally, we introduced two interaction variables: one to capture a possible correlation

between government health expenditure and corruption (GovHealthExp_Corruption) and
another one to understand if there is, on average, a higher education gap in countries with
higher unemployment rates (EducGap_Unemploy). Both these interactions proved to be
statistically insignificant, and were eliminated from the model.

In conclusion, our final model ended up being very similar to the initial one (it should be
pointed out that we refrained from including many of the aforementioned variables to
avoid ending up with too many controls in our model and few observations):

𝑯𝒂𝒑𝒑𝒊𝒏𝒆𝒔𝒔𝑰𝒏𝒅𝒆𝒙𝒊
= 𝜷𝟎 + 𝜷𝟏𝑮𝒊𝒏𝒊𝒊 + 𝜷𝟐𝑮𝒊𝒏𝒊_𝒔𝒒 + 𝜷𝟑𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒊 + 𝜷𝟒𝑬𝒅𝒖𝒄𝑮𝒂𝒑𝒊
+ 𝜷𝟓𝑪𝒐𝒓𝒓𝒖𝒑𝒕𝒊𝒐𝒏𝒊 + 𝜷𝟔𝑮𝒐𝒗𝑯𝒆𝒂𝒍𝒕𝒉𝑬𝒙𝒑𝒊 + 𝜷𝟕𝑬𝒍𝒆𝒄𝒕𝑨𝒄𝒄𝒆𝒔𝒔𝒊 + 𝒖𝒊

Violations of assumptions

In this section, we will discuss potential violations of the Gauss-Markov Assumptions in

our model.

The model is linear in the parameters (MLR.1), and the sample of countries following the
population model is random (MLR.2). Moreover, there is no perfect collinearity in our
model, given that no independent variable is an exact linear combination of any other
(MLR.3).

The Zero Conditional Mean assumption (MLR.4) states that the error term has an
expected value of zero, given any values of the independent variables, i.e. 𝐸(𝑢|𝒙) = 0.
In practice, this means that any possible correlation between the independent variables
and the error term should be accounted for in the model. Shall this fail to happen, and we
will have bias in our model. This is quite an unrealistic assumption to make because there
are always factors that, due to lack of data, we will not be able to include in the model.
However, trying to account for as many factors affecting the dependent variable as
possible was one of the main reasons that led us to include some independent variables,
even when they did not appear to be as statistically significant as we thought they would.

Despite this effort, we still have omitted variables in the error term, which are correlated
with the error term and have an expected impact in the dependent variable. Hence, our
OLS estimators are biased, i.e. their distribution is not centred around the true parameter,
𝛽𝑗 .

One example of this is the % of urban population living in slums, which is strongly
correlated with the % of the population with access to electricity. We did not include this
variable because of the lacking data, as mentioned in Empirical Model and Data.
Nevertheless, it performs well in representing the inequality in housing. Given that the
correlation between these two variables is negative – higher % of urban population living
in slums is likely to be correlated with a lower % of the population having access to
electricity – and the estimated coefficient is positive – higher % of the population with
access to electricity implies a higher predicted Happiness Index –, the sign of the bias will
be negative. Meaning that the true effect of access to electricity will be underestimated,
i.e. our estimated coefficient for this variable will be lower than it is in reality. The bias
is in fact given by:

𝑪𝒐𝒓𝒓𝒆𝒍𝒂𝒕𝒊𝒐𝒏 × 𝑷𝒂𝒓𝒕𝒊𝒂𝒍 𝑬𝒇𝒇𝒆𝒄𝒕 𝒐𝒇 𝒕𝒉𝒆 𝑶𝒎𝒊𝒕𝒕𝒆𝒅 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆

Another variable that we decided to exclude from our model, because it was not
statistically significant, was the number of indoor cinemas per 100,000 hab. This variable
is most likely strongly correlated with the unemployment rate, which has a negative
estimated coefficient. Intuitively, a country with a higher unemployment rate will have
lower demand for (paid) leisure, such as cinema, which in turn implies a lower number
of cinemas per 100,000 hab. However, the consumption of such a type of leisure (which
is widely appreciated and not too expensive or specific) is likely to have an impact on the
dependent variable. Hence, the bias induced by not accounting for this variable is
expected to be positive.

There are in fact many variables that we wished we could introduce in the model, but
unfortunately could not. This is the case of the presence or strength of a social security
net in the country. Unfortunately there was not enough data regarding a possible dummy
variable to account for this, but it is our intuition that the existence of social support
reduces the inequality in a given society, and it is most certainly associated with a greater
share of the health expenditure to be paid for by the government (positive correlation)
and with a lower income inequality, via pensions and other transfers, which would be
reflected in the Gini coefficient (negative correlation). A variable like the existence of a
social security net would most likely positively affect the dependent variable; the sign of
the expected bias is therefore ambiguous.

Another variable that we ought to include in the model was the gender inequality. We
failed to do so because the available data was restricted to a small sample of countries.
Anyway, gender inequality is strongly correlated with income inequality. We hence
expect it to be negatively correlated with the dependent variable and positively correlated
with the Gini coefficient, implying a negative bias.

Because the error term is correlated with some independent variables, the MLR.4 does
not hold in our model, which compromises the unbiasedness of our estimators. Therefore,
in order to conduct inference, we have to claim that our sample (n=67) is large enough so
we can rely on asymptotic efficiency of the OLS estimators and hence, our estimators are
asymptotically unbiased.

The MLR.5 assumption (Homoskedasticity) requires that the error u has the same
variance given any value of the explanatory variables 𝑉𝑎𝑟(𝒖|𝒙𝟏, 𝒙𝟐, … , 𝒙𝒌) = 0

We tested for heteroskedasticity in our model by performing both the Breusch-Pagan test
and the White test. We found significant evidence of heteroskedasticity (p-values of
0.0333 and 0.0383 respectively) and therefore rejected the null hypothesis
(Homoskedasticity) at the 10% significance level.

To conduct inference, be on the safe side and use the OLS estimators, we computed the
robust-standard errors. We know however that, given the failure of the MLR.5
assumption, our estimators might no longer be the most efficient.

Obviously, Classical Linear Model assumptions do not hold in our model, not only
because of what is discussed above, but also because the Normality assumption does not
hold: if neither MLR.4 nor MLR.5 holds, it is not possible that the error term follows a
normal distribution with mean 0 and variance 𝜎². However, with a large sample, we do
not need MLR.6 to make a good inference, and we can rely on asymptotic normality and
the Central Limit Theorem (as n → ∞, the distribution becomes normal).

Results

After running the regression on the final variables, the following estimated regression
was obtained:

̂
𝑯𝒂𝒑𝒑𝒊𝒏𝒆𝒔𝒔𝑰𝒏𝒅𝒆𝒙 𝒊
= 𝟑, 𝟕𝟔𝟏 − 𝟎, 𝟎𝟖𝟎 × 𝑮𝒊𝒏𝒊𝒊 + 𝟎, 𝟎𝟎𝟏 × 𝑮𝒊𝒏𝒊_𝒔𝒒𝒊
− 𝟎, 𝟎𝟔𝟐 × 𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒊 + 𝟎, 𝟎𝟎𝟐 × 𝑬𝒅𝒖𝒄𝑮𝒂𝒑𝒊
+ 𝟎, 𝟎𝟑𝟑 × 𝑪𝒐𝒓𝒓𝒖𝒑𝒕𝒊𝒐𝒏𝒊 + 𝟎, 𝟎𝟎𝟕 × 𝑮𝒐𝒗𝑯𝒆𝒂𝒍𝒕𝒉𝑬𝒙𝒑𝒊
+ 𝟎, 𝟎𝟏𝟖 × 𝑬𝒍𝒆𝒄𝒕𝑨𝒄𝒄𝒆𝒔𝒔𝒊 + 𝒖𝒊

Regarding overall fit of the model, the R2 is 75.68%, which means that 75.68% of the
variability in the Happiness Index is explained by the variability in our multiple linear
regression model. The adjusted R2 of the final model is 72.80%. It is arguable that our
model provides strong evidence that the inequality in a society negatively affects the
Happiness Index, as suggested in the Literature Review. There is, however, some of the
explanation left out of the model, especially because inequality is not, by far, the only
explanation for happiness. In fact, as it has been broadly discussed, the averages play a
determinant role, confirmed by the fact that the Happiness Index itself relies on indicators
that are averages. Nevertheless, our model was able to provide evidence to our economic
intuition that equal societies are, on average, happier. In fact, the F-test of overall
significance with 59 degrees of freedom, 7 variables and 67 observations, yields a p-value
of 0.000, ensuring the statistical relevance of our model, for whatever chosen significance
level.

The overall fit of the model being very high is not of particular interest regarding our
topic of study, because we dedicated more time to the reasoning that led us to choose the
most appropriate variables to better explain inequality within each country, so we minded
that our p-values provided statistically significant evidence of the impact of each variable
in the dependent variable, and only let the variables to be statistically insignificant in the
cases where the economic theory behind it was too clear to be ignored.

We will now discuss the coefficients in more detail and compare our results with the
expectations we had regarding the effect of each variable in the dependent variable.
Afterwards, we will provide interpretation for the standardized coefficients thus
comparing their impacts on the Happiness Index, and hopefully be able to make some
recommendations.

When interpreting a quadratic relationship between the dependent variable and the
independent variables, we need to take into consideration all the terms that are related to
the independent variable. In this case, it is not possible to interpret Gini individually
because it has no ceteris paribus interpretation: it is not possible to change Gini holding
Gini_sq fixed. The marginal impact of Gini on the Happiness Index is given by the
expression
̂
𝝏𝑯𝒂𝒑𝒑𝒊𝒏𝒆𝒔𝒔𝑰𝒏𝒅𝒆𝒙
= −𝟎. 𝟎𝟖𝟎 + 𝟐 × 𝟎. 𝟎𝟎𝟏 × 𝑮𝒊𝒏𝒊 = −𝟎. 𝟎𝟖𝟎 + 𝟎. 𝟎𝟎𝟐 × 𝑮𝒊𝒏𝒊.
𝝏𝑮𝒊𝒏𝒊

For example, if a given country’s Gini coefficient increases from 0.10 to 0.11, the
Happiness Index decreases by 0.0798 pp, on average, ceteris paribus, whereas an
increase in the Gini coefficient from 0.70 to 0.71 decreases the Happiness Index by 0.0786
pp, on average, ceteris paribus. Therefore, each additional point in the Gini coefficient
decreases the Happiness Index at a decreasing rate. The parabolic effect is quite small,
but it is significant enough to be in the model.

As previously discussed on Empirical Model and Data, the coefficient of Unemploy was
expected to be negative. This expectation is confirmed by our estimations, which state
that a 1% increase in unemployment rate leads, on average, to a decrease of 0.062 points
in the Happiness Index, ceteris paribus. There is evidence that unemployment rate is
statistically significant, as it has a p-value of 0.001.

The estimated coefficient for EducGap is, against our initial expectations, positive: on
average, a unitary increase in the absolute difference between the percentage of secondary
and primary school enrolments implies an increase of 0.002 points in the Happiness
Index. It is important to remember that this variable is not statistically significant in our
model (p-value of 0.543). As mentioned before, we tried to capture the inequality in
education using several variables, but this was the one that performed better (even if not
that well). The reason that we left it in our model was mainly the economic intuition, and
the Literature Review, according to which it seems clear that education is an aspect that
affects happiness and in which there are potential inequalities to be controlled for. Our
conclusion is that not only we might have failed in finding the most appropriate indicator,
but also the effect of education in the Happiness Index may be better captured by the
mean education rather than by the inequalities in education. This issue raised important
questions which we consider may be addressed in a more exhaustive matter in a follow-
up study.

As mentioned in the Empirical Model and Data, the estimated coefficient on Corruption
is in accordance with our previous expectations. In fact, a one unit increase in the
Corruption Perceptions Index increases, on average, the Happiness Index by 0.033 points,
ceteris paribus. This variable proved to be statistically significant (p-value of 0.000) at
all significance levels. Please recall that the higher the variable, the lower the levels of
corruption, and that this variable has a p-value this low also because it is one of the aspects
measured in the dependent variable.

Regarding the variable GovHealthExp, the results were what we expected, as an increase
of 1% of the total health expenditure in a country being paid by the government yields a
0.007 increase in the Happiness Index, on average, ceteris paribus. However, there is not
enough statistical evidence to reject the null hypothesis that this coefficient is equal to
zero (p-value 0.143). Nevertheless, we thought we should keep it because it was the best
indicator we found to explain inequality in access to health.

The estimated coefficient for ElectAccess was also in accordance to what we predicted,
as a 1% increase in the number of people with access to electricity means, on average, a
0.018 increase in the Happiness Index, ceteris paribus. The p-value of 0.000 provides
evidence that the variable is significant at any significance level.

A careful look into the standardized (or beta) coefficients, in Appendix 5., corroborates
what we previously discussed. The variables with greater impact in the Happiness Index
are the Gini coefficient, and hence income inequality, as suggested by some of the
literature and economic reasoning, and the Corruption Perceptions Index, which most
probably has to do with the fact that it is also a variable used by the World Happiness
Report. Concerning income inequality, although we cannot make an estimation of how
many standard deviations the Happiness Index would vary in response to one standard
deviation variation in the Gini coefficient (because it would affect two variables at once),
we can conclude that the impact is relatively strong. Among our variables, we consider
that governments could make an effort on reducing income inequality in order to increase
welfare (this could be made, for instance, with redistributional measures and different
systems of taxation and social security). A deeper scrutiny of these standardized
coefficients and the respective normative analysis could be explored in a further study,
but falls out of the scope of this one.

Moreover, a residual analysis takes us back to the problem of unobserved characteristics

of the countries. When comparing Portugal with Bolivia, our model predicted a much
higher Happiness Index for Portugal, as illustrated in Appendix 8. The difference,
however, ends up being very short: Portugal has a Happiness Index of 5.91 and Bolivia
has 5.75. We can say that Bolivia performs better in terms of happiness than what we
expected and the opposite can be said of Portugal. Again, this may be due to some feature
other than the ones observed in the model (aside from the ones already mentioned, the
emotional parameters could have some weight in this case, as explained in the Gallup
Global Emotions Report of 2019). Another follow-up study could control for emotional
factors studied by Gallup’s surveys; it could be interesting to make a model with a more
restricted number of countries (the restriction could be made by region of the globe, for
example), in order to have specific variables controlling these characteristics.
Conclusions

This report tried to answer the question: Are equal societies happier? Summing all up, it
is safe to say that most of our findings are in accordance with the studies made in this
field, and with what we expected: we have reasons to say that, on average, countries that
are more equal are, in fact, happier. This statement is supported by the data that we
gathered and the results of our model, explained in the previous section. In any case, we
are aware that many other variables could be investigated, in order to control for a
country’s inequality, which has countless dimensions.

Some surprising outcomes were revealed, however. The most striking one was that of
education: our Literature Review points to the fact that education influences a country’s
happiness; on that matter, we have already explained that we were probably not able to
find the most appropriate indicator to accurately capture inequality. One possible
improvement of our model would be the development of such an indicator. The same
applies to leisure and social support: if we had been able to control for these factors, the
omitted variable bias would have been reduced.
Appendix

1. Summary of variables

2. Correlation Matrix

3. Base Model
4. Model with Gini index squared and interaction term

5. Final model with Gini index squared

6. Breusch-Pagan Test
7. White Test

8. Residual analysis
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