Fiscal policy and well-being beyond GDP: does the allocation between direct and indirect taxes matter?

This paper examines whether the composition of the tax system – specifically the share of indirect taxes in total tax revenue – affects subjective well-being beyond what income alone can explain. Drawing on panel data for 137 countries over the period 2019–2024, we regress a residual well-being measure (the non-GDP component of the Cantril Ladder, sourced from the World Happiness Report 2025) on the share of indirect taxes and a set of socioeconomic controls. Results suggest a positive and significant association between indirect tax reliance and non-income well-being at the global level, with notable heterogeneity across regions. The findings contribute to debates on the welfare effects of tax structure and the limitations of GDP-centric welfare metric.