Sustainable economic policy and well-being: The relationship between adjusted net savings and subjective well-being

Sustainable plans    
reduce current well-being,    
though are good long term.    

sue henderson 505656 unsplashAll governments must make a trade-off between running sustainable economic policies and raising the more immediate welfare of their citizens. This trade-off helps to explain why many governments fail to adopt sustainable economic policies even though by doing so they would improve the well-being of future generations.

This paper looks at subjective well-being and a country’s adjusted net savings, which is a common proxy for long term sustainable development. (Adjusted net savings is also known by other names, e.g. Genuine Savings.) We explore the relationship between individual subjective well-being and sustainable economic development as well as looking at results for different groups.

We analyse the relationship between subjective wellbeing (SWB) and the World Bank’s measure of a country’s economic sustainability, adjusted net savings (ANS). We model SWB at individual level and at aggregated group level as a function of past ANS levels, after controlling for a country’s initial levels of SWB. The empirical models utilise World Values Surveys (WVS) data for self-reported life-satisfaction (our proxy for SWB).

Our results show that ANS is negatively associated with future SWB outcomes over relatively short timespans (10-15 years) but this relationship is neutralised, or even reversed, for a longer timespan (20 years). The results demonstrate an important challenge in political economy. Governments that choose to save less in the short term may be able to spend more on the well-being of the current generation (i.e. current voters) but they diminish the reserves available to improve future generations’ well-being. At a more technical level, our results reinforce the concept that ANS is a useful sustainability indicator for infinite (or at least very long) time horizons, but it is not a good indicator of well-being developments over short time horizons.

Citation

Qasim, Mubashir and Arthur Grimes. 2018. "Sustainable economic policy and well-being: The relationship between adjusted net savings and subjective well-being." Motu Working Paper 18-06, Motu Economic and Public Policy Research Trust. Wellington, New Zealand.

Funders

Marsden Fund of the Royal Society of New Zealand