Decentralizing happiness

Abstract This article investigates the impact of decentralization of political and economic power on happiness levels globally. We make two contributions to the literature. First, we expand the empirical analysis beyond the typical focus on Western countries by using data from the World Happiness Report (2019–2022), covering 131 countries worldwide. Second, we examine the specific mechanisms driving the relationship between decentralization and happiness. By distinguishing between decentralized and centralized government expenditures, revenues, and taxes, we show that higher subcentral spending—particularly when funded by transfers—positively influences happiness. Our findings reveal that countries with decentralized governance structures report higher happiness levels, primarily driven by increased subcentral spending. Furthermore, happiness is more positively affected when local services are funded through transfers from higher levels of government, rather than local taxes.