Partisan social happiness

We use a new approach to study questions in political economy that relies on data on the subjective well-being of more than a quarter of a million people living in the OECD over the period 1975-92. Controlling for personal characteristics of the respondents, year and country fixed effects and country specific time trends, we find that the data describe social happiness functions for left-wing and right-wing individuals where inflation and unemployment enter negatively. We use these functions to test the root assumption of partisan business cycle models where left-wing individuals care more about unemployment relative to inflation than right-wingers. Bootstrap confidence intervals suggest that up to 90 per cent of the time the evidence is consistent with this assumption. Interestingly, we find that it is misleading to assume that the poor (rich) behave similarly to the left (right). For example, the poor hurt more by inflation than the rich, while the left are hurtless than the right. Finally, we found that individuals declare themselves to be happier when the party they support is in power, even after controlling for economic variables. Our findings are hard to explain using median voter models but are to be expected in a partisan world.