Working Paper Series
Trust, Welfare States and Income Equality: What Causes What?
() and Christian Bjørnskov
Abstract: The cross-country correlation between social trust and
income equality is well documented, but few studies examine the direction
of causality. We show theoretically that by facilitating cooperation, trust
may increase efficiency and lead to more equal outcomes, while the feedback
from inequality to trust is ambiguous. Using a structural equations model
estimated on a large country sample, we find that trust has a positive
effect on both market and net income equality. Larger welfare states lead
to higher net equality but neither net income equality nor welfare state
size seems to have a causal effect on trust. We conclude that while trust
facilitates welfare state policies that may reduce net inequality, this
decrease in inequality does not increase trust.
Keywords: Social trust; Inequality; Welfare State; (follow links to similar papers)
JEL-Codes: D63; D69; H10; (follow links to similar papers)
42 pages, December 12, 2013
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