Economic freedom and happiness: On moderation and mediation

This chapter presents an overview of research on the relationship between happiness and economic freedom and its subdimensions (government size, rule of law, sound money, trade freedom, and government regulation). The literature shows ample support of a positive relationship between the overall index of economic freedom and happiness, but evidence of causality is more ambiguous. A positive relationship is most supported for rule of law and least supported for (a small) size of government and freedom from government regulation. Furthermore, the literature has suggested several moderators that affect the strength of the relationship between economic freedom and happiness, including culture, income, and quality of government. Mediation is relatively unexplored, but the few studies available identified satisfaction with public goods, income, trust, income inequality, job perspectives, and individual autonomy as mediating factors. To further our knowledge on how economic freedom affects happiness, more research on moderating and mediating factors is needed.