Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 144: Historical Trust Levels Predict Current Welfare State Design

Andreas Bergh () and Christian Bjørnskov ()
Additional contact information
Andreas Bergh: The Ratio Institute and Lund University, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Christian Bjørnskov: Aarhus School of Business, Aarhus University, Postal: Department of Economics , Hermodsvej 22 , DK-8230 Åbyhøj, Denmark

Abstract: Using cross-sectional data for 76 countries, we apply instrumental variable techniques based on pronoun drop, temperature and monarchies to demonstrate that historical trust levels predict several indicators of current welfare state design, including universalism and high levels of regulatory freedom. We argue that high levels of trust and trustworthiness are necessary, but not sufficient, conditions for societies to develop successful universal welfare states that would otherwise be highly vulnerable to free riding and fraudulent behavior. Our results do not exclude positive feedback from welfare state universalism to individual trust, although we claim that the important causal link runs from historically trust levels to current welfare state design.

Keywords: Social trust; Welfare State

JEL-codes: Z13

28 pages, October 29, 2009

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