Trust, Welfare States and Income Equality: What Causes What?

43 Pages Posted: 11 Feb 2014

See all articles by Andreas Bergh

Andreas Bergh

Research Institute of Industrial Economics (IFN); Lund University - Department of Economics

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies; Institute for Corruption Studies

Date Written: December 12, 2013

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

JEL Classification: H10, D63, D69

Suggested Citation

Bergh, Andreas and Bjørnskov, Christian, Trust, Welfare States and Income Equality: What Causes What? (December 12, 2013). IFN Working Paper No. 994. Available at SSRN: https://ssrn.com/abstract=2393674 or http://dx.doi.org/10.2139/ssrn.2393674

Andreas Bergh (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34 2nd floor
Stockholm, SE-102 15
Sweden
0707790734 (Phone)

HOME PAGE: http://www.ifn.se/web/AndreasB

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07
Lund
Sweden

HOME PAGE: http://www.nek.lu.se/

Christian Bjørnskov

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

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