Disasters are catastrophic events with negative outcomes and often many personal tragedies. There is no doubt Japan’s triple disaster of 11 March 2011 was one of the most severe on a global scale, with the Great East Japan Earthquake triggering a large-scale tsunami causing more than 15,000 casualties. This, in turn, resulted in the meltdown of the Fukushima Daiichi Nuclear Power Plant, which not only had an impact on people’s lives but also damaged the country’s international reputation.
In recent years, one area of economics has started to divert from solely measuring a country’s well-being in monetary terms—for example using Gross Domestic Product—to take more individual and psychological factors into account. This subjective well-being is also known as happiness or life satisfaction.
Happiness and life satisfaction have received increasing attention by academic scholars and policy makers around the globe lately. In academic research, these topics have been studied from the perspective of various fields including philosophy, psychology and sociology. In economics, this has even led to the establishment of a new stream of research: happiness economics.
At the same time, policy makers have started to consider alternative indicators to Gross National Product, such as Gross National Happiness. In 2010, the government of Japan—one of the world’s largest economies—set up a commission on measuring well-being and the Cabinet Office made happiness and its impact factors the focus of its annual National Survey on Lifestyle Preferences.
From academic research we know that disasters have negative effects on subjective well-being while also having positive effects on charitable donations. In happiness studies, the positive effect of donations on subjective well-being is a firmly established finding. But, what if both effects happen at the same time?
We set out to investigate whether an increase in donations in the aftermath of disasters can mitigate the negative effects on subjective well-being, and if so, whether policy measures, such as tax law changes, can amplify this mitigating effect by providing further incentives for donations.
To answer these questions we analysed the subjective well-being effects in Japan of the 11 March triple disaster. Shortly after the disaster, the Japanese government put a long-planned change to tax law into effect, allowing higher tax deductions for charitable donations.
Building on studies, we expect disasters to have a negative direct effect on subjective well-being, a positive direct effect on donations, and a positive indirect effect on subjective well-being through donations.
In other words, we expected the effect of 11 March to be partly mediated and mitigated by charitable donations. We further assumed that the awareness of the tax law change influences the relationship between the disaster and donation behaviour.
We expected that, in the aftermath of the disaster, respondents who were aware of the tax law change were more likely to donate. We used pooled cross-sectional data from the 2010–2012 National Survey on Lifestyle Preferences. We looked at the following variables from the data set: happiness, donation behaviour, time (before and after 2011) and tax law change awareness.
From our data analysis we found that, on average, the disaster caused a decline in happiness of about 0.27 points in the following year, measured on a scale of 0 to 10. Considering this amounts to about half of the effect of unemployment, it gives a rough picture of the magnitude of the disaster.
However, the disaster did not only have negative effects. Through the reconstruction campaigns in its aftermath, the donation level rose by about 240% compared to the year before. Since donations, in turn, have a positive effect on feelings of happiness, about 30% of the negative direct effects of the disaster are compensated by the positive indirect happiness effects of the rise in donations.
This is an astonishing result in terms of the huge magnitude of the mitigating effect of donations in the aftermath of a disaster. Charitable donations are far more powerful than their monetary value; this is not about the happiness of those who receive the donations, but the happiness of those who give.
In an extension of our analysis we show that the mitigating effect of donations is about 15 percent points stronger in respondents in 2012 who were aware of the tax law change. Clearly the change in tax law had an impact.
Although tax law change awareness leads to higher mitigating effects, only about 13% of respondents were aware of the change in tax law. Therefore, the tax law change does not significantly effect the aggregate level of donations.
We conclude that, hypothetically at least, the negative effects on subjective well-being of the disaster could have been mitigated further by about 15% if more people had been aware of the 2011 tax law change.
As for policy implications, our results show that governments can create incentives for donations in the aftermath of disasters. However, without effectively communicating new incentive schemes to the public, it might not be worth the effort.