When Does Economic Growth Improve Life Satisfaction? Multilevel Analysis of the Roles of Social Trust and Income Inequality in 46 Countries, 1981–2012

Governments across the world seek to promote a better life for their citizens, but thus far scholars have provided contradictory advice. While some argue that economic growth leads to higher subjective well-being, and others argue that it does not, we are the first to specify two conditions that make economic growth compatible with subjective well-being over time: increasing social trust and declining income inequality. Our methodological contribution is to combine micro- and macro-level data from a large sample of developing, transition, and developed countries and to explicitly distinguish the cross-country differences from the changes over time. We perform a multilevel analysis of harmonized data composed of the World Values Survey, the European Values Study, and macro-level indicators of economic growth and income inequality for 46 countries, observed from 1981 to 2012. Our results show that in the long run economic growth improves subjective well-being when social trust does not decline and, in richer countries, when income inequality reduces. These results are compatible with the recommendation that, to pursue durable improvements in people’s subjective well-being, policy-makers should adopt a ”promote, protect and reduce” policy agenda: promote economic growth, protect and promote social trust, and reduce income inequality.