The More, the Better: Life Satisfaction in the Bitter Welfare State

Within the current global economic turmoil, the subject of the welfare state has been exposed to a critical debate concerning its true costs. While there is no doubt about the necessity of having such a social protection safety net, there arises the question of the amount of these benefits and beyond what limit they end up generating negative effects on a country's citizens. Taking the Nordic countries as a baseline, many European countries have adopted strong social protection programs to uphold the quality of life for their citizens. However, given the costs that come with these social benefits, one can rightfully ask whether people truly thrive in the welfare state or are they better off without it. The aim of this research is to provide empirical evidence for the existence of a non-linear relationship between various classes of income and life satisfaction. Based on the happiness economics literature, this paper examines the connection between life satisfaction, as a proxy for wellbeing, and incomes on three different sectors-retirees, people relying on social expenses, and population active on the labor market. Additionally, based on the hypothesis that countries seek out to maintain life satisfaction in periods of economic hardship through increases in social expenditure, this paper calculates the optimal level of debt cost that should be supported by the respective countries, in order to assess whether they are increasing their debt over a level that is considered to be sustainable. A sample of 15 European countries is tested on a time span of 10 years. The findings suggest that there is a non-linear relationship between life satisfaction and the three analysed classes of income. Moreover, countries have been increasing their debt levels over an optimal level to fuel social expenses in order to maintain citizens' life satisfaction.