Effect of Income on Trust: Evidence from the 2009 Crisis in Russia

71 Pages Posted: 24 Dec 2014 Last revised: 9 Dec 2016

See all articles by Maxim Ananyev

Maxim Ananyev

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Sergei M. Guriev

Sciences Po; Centre for Economic Policy Research (CEPR); European Bank for Reconstruction and Development (EBRD)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2016

Abstract

This paper draws on a natural experiment to identify the relationship between income and trust. We use a unique panel dataset on Russia where GDP experienced an 8 percent drop in 2009. The effect of the crisis had been very uneven among Russian regions because of their differences in industrial structure inherited from the Soviet period. We find that the regions that specialize in producing capital goods, as well as those depending on oil and gas, had a more substantial income decline during the crisis. The variation in the industrial structure allows creating an instrument for the change in income. After instrumenting average regional income, we find that the effect of income on generalized social trust (the share of respondents saying that most people can be trusted) is statistically and economically significant. Controlling for conventional determinants of trust, we show that 10 percent decrease in income is associated with 5 percentage point decrease in trust. Given that the average level of trust in Russia is 25%, this magnitude is substantial. We also find that post-crisis economic recovery did not restore pre-crisis trust level. Trust recovered only in those regions where the 2009 decline in trust was small. In the regions with the large decline in trust during the crisis, trust in 2014 was still 10 percentage points below its pre-crisis level.

Keywords: social capital, trust, business cycle

JEL Classification: O10, P10

Suggested Citation

Ananyev, Maxim and Guriev, Sergei M., Effect of Income on Trust: Evidence from the 2009 Crisis in Russia (June 1, 2016). Available at SSRN: https://ssrn.com/abstract=2542001 or http://dx.doi.org/10.2139/ssrn.2542001

Maxim Ananyev (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Sergei M. Guriev

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Bank for Reconstruction and Development (EBRD) ( email )

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London, EC2A 2EH
United Kingdom

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