Corruption Takes Away Happiness: Evidence from a Cross-National Study

Both corruption and subjective well-being are of concern to academics, governments, and policy makers. This paper studies the impact of corruption on subjective well-being, using cross-national data for 126 countries. By employing preindustrial local traditional democracy level as a novel instrument variable for current corruption, the paper addresses the endogeneity issue. We find the national average of subjective well-being would decrease by 0.23 points if a government became more corrupt by 10 points, and unemployment rate had to decrease equivalently by 9.2% to keep the national average subjective well-being unchanged. Further investigation shows that corruption had a significant effect in democratic or high-income countries only. The results are robust to alternative measures of corruption and happiness, estimation strategies, and excluding outliers.