To what extent can governmental policies help cultivate a relatively prosperous, secure and free citizenry? A 2011 study published in Psychological Science, “Progressive Taxation and the Subjective Well-Being of Nations,” evaluates the impact of progressive taxation — a higher tax rate for the rich and a lower one for the poor — on levels of satisfaction and well-being.

The researchers, based at the University of Virginia, analyzed nearly 60,000 responses to the 2007 Gallup World Poll from more than 50 countries. Questions included self-assessments on overall well-being, daily life and satisfaction with public resources such as education and transportation. The study also evaluates the difference between the lowest and highest effective tax rates for each country.

Study findings include:

• Progressive taxation is positively associated with overall well-being and satisfaction with daily life; however, a progressive taxation policy or a nation’s wealth in and of itself may not create a happy society. “It is the use of the nation’s wealth to provide citizens with better public goods that results in increased well-being.”
• As government spending as a percentage of gross domestic product increases, reported levels of satisfaction with daily life and overall quality of life decline. “Our findings therefore do not provide support for the simple ‘big government’ idea that the larger a role the government plays, the better the quality of life becomes.”
• Controlling for income inequality and variations in national wealth, individuals in countries with more progressive taxation consider their lives as being closer to ideal and evaluated their daily lives more positively than those in nations with less progressive taxation.
• The association between higher levels of subjective well-being and more progressive taxation “was mediated by citizens’ satisfaction with public goods, such as education and public transportation.”

The researchers note that factors such as social cohesion may play a role in promoting a sense of well-being. In addition, the value of progressive taxation may be in the resources it provides: “Even if a society does not adopt a progressive tax, as long as it can afford good public transportation, a quality educational system, health care and so forth, citizens are likely to be happy.”

Tags: poverty, inequality