Unraveling the Causal Link Between Corruption and Happiness: Insights from Developing and Advanced Economies

Abstract

In recent years, the concept of the corruption economy has gained significant prominence on the international agenda. Corruption generates numerous adverse effects, including reductions in tax revenues, the exacerbation of income inequality, and the misallocation and waste of public resources. The present study examines the causal relationship between perceptions of corruption and perceptions of happiness at the country level. For this purpose, the study applies panel Granger causality analysis to data from 81 countries for the period 2010–2023. After analysis of the full sample, countries are classified as developing or advanced economies based on the International Monetary Fund (IMF) classification. Causality tests are applied to both groups and are interpreted comparatively. After controlling for macroeconomic variables such as per capita economic growth, unemployment, and inflation, the results reveal a unidirectional causality from perceptions of corruption to perceptions of happiness at the global level. However, subgroup analyses indicate a bidirectional causality in developing economies and no significant causality in advanced economies. These findings underscore the critical role that the level of development plays in shaping the interaction between the perceptions of corruption and happiness.

JEL: D73, I31, C23