Abstract

Despite the strong growth performance in transition countries in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from multiple sources including a recent survey in 28 post-communist countries, we study various explanations of this phenomenon. We find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition is strongly related to income; but due to a higher non-response of high-income individuals in transition countries, the effect of GDP growth on the increase in life satisfaction estimated using survey data is biased downwards. The evidence suggests that if the region keeps growing at current rates, the life satisfaction in transition countries will catch up with the normal level in the near future.