Can the decline in happiness in Europe be attributed to the COVID-19 pandemic and its interaction with the budget deficit?

Abstract The outbreak of the COVID-19 pandemic has caused a great slump in the world. There has been an alarming increase in mortality rate, number of infections, and deterioration of macroeconomic indicators such as GDP, which have worsened the happiness and well-being of the population, despite the multi-faceted restraint and supports measures implemented by several governments to curb the spread of the virus. Using sample of 31 European countries as a dataset, this paper analyzes the effect of the worsening COVID-19 budget deficit on people's happiness in the year 2020. The main idea is to determine, independently of a country's characteristics, the duration of the pandemic or the containment regulations; whether the effect of the pandemic on happiness is increased by the worsening of the budget deficit. The Generalized Least Squares (GLS) estimation shows that death tolls and infected cases of COVID-19 are key determinants that significantly worsen individuals' happiness. In addition, its interaction with fiscal deficit further decreases people's life satisfaction, since the budgetary situation of these countries was already unsustainable long before the pandemic. Hence, there is urgency for States to provide for a community solidarity fund for the resources necessary for crisis management in their budget line.