More Taxation Means More Happiness?

Matt Yglesias says that "the links between taxation, spending, and inequality are the most plausible explanation of the fact that the highest-taxed countries are the happiest. It can't be that paying taxes makes Danes happy. But plausibly, living in a relatively egalitarian society makes people happy." Is that right?

My sense is there's some evidence that more equality means more happiness, though the connection is not that strong. Here's the the Gini coefficient (a measure of inequality) in the United States, plotted against self-reported happiness:

inequality and happiness.png

The correlation is positive, but very slight. Not something I'd want to use to make policy. More generally, I stand by my earlier skepticism about self-reported happiness.