The Effect of the Great Recession on Interpersonal and Political Trust in Europe

Abstract

Many individuals, from pundits to the Secretary of the UN General Assembly, have asserted that the world is experiencing a crisis of trust and conjecture a primary cause is the 2008 Global Financial Crisis. Using the European Social Survey, and data across fifteen countries from 2002 to 2016, I analyze the response of trust to financial crisis with an emphasis on how it varied across countries. First, I find that the purported “crisis of trust” is exaggerated. Second, I conclude that changes in the macro-economic environment have a non-linear effect on trust; small changes in GDP effect trust levels very little and it takes a major recession to have a significant effect on trust. Third, I find that the effect of financial crisis on rates of political trust differs across countries. Likewise, other determinants of trust exhibit considerable cross-country variation. Fourth, I find that demographic variables might help explain peculiarities in the relationship between changes in the macro-economy and levels of trust.

Keywords: trust, financial crises, politics, Europe

JEL Classification: H11, A13