Attention lawmakers scrambling to avoid huge tax increases next month: New research suggests people who pay more taxes are happier. At least German people.
People who pay higher taxes than other people tend to be more satisfied with their lives, according to a new paper written by six economists at the Institute for the Study of Labor in Bonn. The researchers analyzed 26 years of German panel data that asked about 25,000 people the question “How satisfied are you with your life, all things considered?”
After controlling for income, age, education and other variables that could influence someone’s level of well-being, the researchers found that people who paid more in taxes reported higher levels of happiness.
No single reason accounted for why those with a heftier tax bill were happier, but the economists found some evidence supporting several potential factors. One reason could be that people enjoy the public goods and services made possible by taxes. For example, German households who regularly attended cultural events such as concerts and plays, which are at least partially publicly funded in Germany, were happier to pay taxes than “inactive” households.
Other possible factors include a sense that redistributing wealth is necessary, altruism, and a measure of “tax morale,” the sense that there is a “moral obligation to pay taxes and if you don’t do it, you might feel bad about it,” co-author Sebastian Siegloch, a Ph.D. candidate at the University of Cologne, said in an interview Wednesday.
Previous neuroscience research has shown that giving to charity, for example, can activate certain parts of the brain linked to “rewards processing” and paying taxes might generate a similar “warm glow motive,” the paper noted.
Motivation might also differ among varying groups of people, or include a combination of reasons, Mr. Siegloch said.
The research doesn’t answer whether people would be happier if their tax rates increase.
“You can’t rule it out, but I think it’s probably not very likely that it’s that direct of an effect,” Mr. Siegloch said.
Americans might also show different results than Germans. “It could be different in the U.S.,” he said.
In the U.S., most households will likely see some form of tax increase next year, regardless of whether the White House and Congress reach a deal to avoid the so-called fiscal cliff, the roughly $500 billion in tax increases and spending cuts scheduled to kick into effect in January. Even with a deal, tax rates are likely to climb for many upper-income households (with the income cut-off yet to be determined) and workers’ payroll tax rate appears likely to rise. Without a deal, individual tax rates will rise for all income groups and the payroll tax rate will rise.
It is far from safe to conclude that Democrats, who tend to support tax increases more often than Republicans, have unlocked the secret to happiness.
Personal happiness has also been linked recently to less regulation, long a rallying cry among Republicans. People living in countries with “less intense” regulation showed more life satisfaction, according to a new paper from the Austrian Institute of Economic Research.
And those who got a bigger boost of happiness from deregulation included not only free-market supporters, but also “political left-wingers,” according to the research.
“One should consider the possibility that individuals systematically miscalculate the value of certain government policies for their own life satisfaction,” the paper noted.