The bigger the better? Evidence of the effect of government size on life satisfaction around the world

This paper empirically analyzes whether government size is conducive or detrimental to life satisfaction in a cross-section of 74 countries. We thus provide a test of the longstanding dispute between standard neoclassical economic theory and public choice theory. According to the neoclassical view, governments play unambiguously positive roles for individuals' quality of life, while the theory of public choice has been developed to understand why governments often choose excessive involvement in – and regulation of – the economy, thereby harming their citizens' quality of life. Our results show that life satisfaction decreases with higher government consumption. For low, middle income, and male people, this result is stronger when the government is leftwing, while government consumption appears to be less harmful for women when the government is perceived to be effective. Government capital formation and social spending have no significant impact on life satisfaction.