Subjective Well Being and Fiscal Policy: A Causal Analysis of Zimbabwe (1980 to 2020)

Abstract

The purpose of the study was to investigate the causal relationship between fiscal policy and subjective well-being for the Zimbabwean economy from 1980 to 2020. The study adopted the Vector Auto Regressive Model to characterise the relationship between subjective well-being and fiscal policy. In addition, the cointegration technique was used to establish the long run relationship between fiscal policy and subjective well-being. The Granger causality test was conducted to ascertain the direction of causality between the variables. The study results show that the variation on subjective well-being from taxation is greater than the variation from government expenditure. In addition, the study findings show that there is a long run relationship between fiscal policy and subjective well-being. The major finding of the study is that fiscal policy granger causes subjective well-being. The study recommended that the Government of Zimbabwe should prioritisation of government expenditure to effectively deliver public goods, revisiting the progressivity of the taxation to have a positive influence of taxes on subjective well-being and construction of Gross National Happiness Index which informs fiscal policy makers on the level of subjective well-being after making policy changes.