IDEAS home Printed from https://ideas.repec.org/a/eee/poleco/v35y2014icp183-199.html
   My bibliography  Save this article

Trust, welfare states and income equality: Sorting out the causality

Author

Listed:
  • Bergh, Andreas
  • Bjørnskov, Christian

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 lead to more equal outcomes, while the feedback from inequality to trust is ambiguous. Using a structural equation 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.

Suggested Citation

  • Bergh, Andreas & Bjørnskov, Christian, 2014. "Trust, welfare states and income equality: Sorting out the causality," European Journal of Political Economy, Elsevier, vol. 35(C), pages 183-199.
  • Handle: RePEc:eee:poleco:v:35:y:2014:i:c:p:183-199
    DOI: 10.1016/j.ejpoleco.2014.06.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0176268014000457
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ejpoleco.2014.06.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Greiner, Ben & Ockenfels, Axel & Werner, Peter, 2012. "The dynamic interplay of inequality and trust—An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 355-365.
    2. Gustavsson, Magnus & Jordahl, Henrik, 2008. "Inequality and trust in Sweden: Some inequalities are more harmful than others," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 348-365, February.
    3. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    4. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    5. Congleton, Roger D & Shughart, William F, II, 1990. "The Growth of Social Security: Electoral Push or Political Pull?," Economic Inquiry, Western Economic Association International, vol. 28(1), pages 109-132, January.
    6. Joseph Henrich, 2001. "In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies," American Economic Review, American Economic Association, vol. 91(2), pages 73-78, May.
    7. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
    8. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    9. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
    10. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
    11. Thomas Lemieux, 2006. "Postsecondary Education and Increasing Wage Inequality," American Economic Review, American Economic Association, vol. 96(2), pages 195-199, May.
    12. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    13. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
    14. Blaine Robbins, 2012. "Institutional Quality and Generalized Trust: A Nonrecursive Causal Model," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 107(2), pages 235-258, June.
    15. Boenisch, Peter & Schneider, Lutz, 2013. "The social capital legacy of communism-results from the Berlin Wall experiment," European Journal of Political Economy, Elsevier, vol. 32(C), pages 391-411.
    16. Ciriolo, Emanuele, 2007. "Inequity aversion and trustees' reciprocity in the trust game," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1007-1024, December.
    17. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
    18. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-338, May.
    19. Breyer, Friedrich & Craig, Ben, 1997. "Voting on social security: Evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 13(4), pages 705-724, December.
    20. Christian Bjørnskov & Gert Svendsen, 2013. "Does social trust determine the size of the welfare state? Evidence using historical identification," Public Choice, Springer, vol. 157(1), pages 269-286, October.
    21. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    22. Axel Dreher & Noel Gaston, 2008. "Has Globalization Increased Inequality?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 516-536, August.
    23. Barr, Nicholas, 2004. "Economics of the Welfare State," OUP Catalogue, Oxford University Press, edition 4, number 9780199264971, November.
    24. Hans Pitlik & Ludek Kouba, 2015. "Does social distrust always lead to a stronger support for government intervention?," Public Choice, Springer, vol. 163(3), pages 355-377, June.
    25. Michael Naef & Jürgen Schupp, 2009. "Measuring Trust: Experiments and Surveys in Contrast and Combination," SOEPpapers on Multidisciplinary Panel Data Research 167, DIW Berlin, The German Socio-Economic Panel (SOEP).
    26. Samuel Bowles & Robert Boyd & Colin Camerer & Ernst Fehr & Herbert Gintis & Joseph Henrich & Richard McElreath, 2001. "In search of homo economicus: Experiments in 15 small-scale societies," Artefactual Field Experiments 00068, The Field Experiments Website.
    27. repec:hrv:faseco:30726298 is not listed on IDEAS
    28. Boix, Carles & Posner, Daniel N., 1998. "Social Capital: Explaining Its Origins and Effects on Government Performance," British Journal of Political Science, Cambridge University Press, vol. 28(4), pages 686-693, October.
    29. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
    30. Paola Sapienza & Anna Toldra‐Simats & Luigi Zingales, 2013. "Understanding Trust," Economic Journal, Royal Economic Society, vol. 123(12), pages 1313-1332, December.
    31. Emanuele Ciriolo, 2007. "Inequity aversion and trustees' reciprocity in the trust game," ULB Institutional Repository 2013/176651, ULB -- Universite Libre de Bruxelles.
    32. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    33. Papagapitos, Agapitos & Riley, Robert, 2009. "Social trust and human capital formation," Economics Letters, Elsevier, vol. 102(3), pages 158-160, March.
    34. Lindbeck, A., 1994. "Welfare State Disincentives with Endogenous Habits and Norms," Papers 589, Stockholm - International Economic Studies.
    35. Stigler, George J, 1970. "Director's Law of Public Income Redistribution," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 1-10, April.
    36. Alberto Chong, 2004. "Inequality, Democracy, and Persistence: Is There a Political Kuznets Curve?," Economics and Politics, Wiley Blackwell, vol. 16(2), pages 189-212, July.
    37. Zhang, Licheng & Wang, Hong & Wang, Lushang & Hsiao, William, 2006. "Social capital and farmer's willingness-to-join a newly established community-based health insurance in rural China," Health Policy, Elsevier, vol. 76(2), pages 233-242, April.
    38. Berggren, Niclas & Bjørnskov, Christian, 2011. "Is the importance of religion in daily life related to social trust? Cross-country and cross-state comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 459-480.
    39. James C. Cox & Elinor Ostrom, & James M. Walker & Antonio Jamie Castillo & Eric Coleman & Robert Holahan & Michael Schoon & Brian Steed, 2009. "Trust in Private and Common Property Experiments," Southern Economic Journal, John Wiley & Sons, vol. 75(4), pages 957-975, April.
    40. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
    41. David McKenzie & Hillel Rapoport, 2006. "Migration and education inequality in rural Mexico," INTAL Working Papers 1446, Inter-American Development Bank, INTAL.
    42. Henrekson, Magnus, 1993. "Wagner's Law--A Spurious Relationship?," Public Finance = Finances publiques, , vol. 48(3), pages 406-415.
    43. Andreas Bergh & Christian Bjørnskov, 2011. "Historical Trust Levels Predict the Current Size of the Welfare State," Kyklos, Wiley Blackwell, vol. 64(1), pages 1-19, February.
    44. Lindbeck, Assar, 1995. " Welfare State Disincentives with Endogenous Habits and Norms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 477-494, December.
    45. Bo Rothstein, 2001. "The Universal Welfare State As A Social Dilemma," Rationality and Society, , vol. 13(2), pages 213-233, May.
    46. Henrich, Joseph & Boyd, Robert & Bowles, Samuel & Camerer, Colin & Fehr, Ernst & Gintis, Herbert (ed.), 2004. "Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies," OUP Catalogue, Oxford University Press, number 9780199262052, November.
    47. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring.
    48. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242, June.
    49. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-388, September.
    50. Michele Piccione & Ariel Rubinstein, 2007. "Equilibrium in the Jungle," Economic Journal, Royal Economic Society, vol. 117(522), pages 883-896, July.
    51. Leon, Gabriel, 2014. "Strategic redistribution: The political economy of populism in Latin America," European Journal of Political Economy, Elsevier, vol. 34(C), pages 39-51.
    52. Håkan J. Holm & Anders Danielson, 2005. "Tropic Trust Versus Nordic Trust: Experimental Evidence From Tanzania And Sweden," Economic Journal, Royal Economic Society, vol. 115(503), pages 505-532, April.
    53. Roger Congleton & Feler Bose, 2010. "The rise of the modern welfare state, ideology, institutions and income security: analysis and evidence," Public Choice, Springer, vol. 144(3), pages 535-555, September.
    54. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    55. repec:cup:cbooks:9780521555838 is not listed on IDEAS
    56. Laura De Dominicis & Raymond J. G. M. Florax & Henri L. F. De Groot, 2008. "A Meta‐Analysis On The Relationship Between Income Inequality And Economic Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(5), pages 654-682, November.
    57. Brülhart, Marius & Usunier, Jean-Claude, 2012. "Does the trust game measure trust?," Economics Letters, Elsevier, vol. 115(1), pages 20-23.
    58. Christian Bjørnskov, 2010. "How does social trust lead to better governance? An attempt to separate electoral and bureaucratic mechanisms," Public Choice, Springer, vol. 144(1), pages 323-346, July.
    59. Lisa Anderson & Jennifer Mellor & Jeffrey Milyo, 2006. "Induced heterogeneity in trust experiments," Experimental Economics, Springer;Economic Science Association, vol. 9(3), pages 223-235, September.
    60. Sadrieh, Abdolkarim & Verbon, Harrie A.A., 2006. "Inequality, cooperation, and growth: An experimental study," European Economic Review, Elsevier, vol. 50(5), pages 1197-1222, July.
    61. Ken Binmore, 1994. "Game Theory and the Social Contract, Volume 1: Playing Fair," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023636, February.
    62. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    63. World Bank, 2010. "World Development Indicators 2010," World Bank Publications - Books, The World Bank Group, number 4373.
    64. Xing, Li & Fan, Shenggen & Luo, Xiaopeng & Zhang, Xiaobo, 2006. "Village Inequality in Western China," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25390, International Association of Agricultural Economists.
    65. Garett Jones & Niklas Potrafke, 2014. "Human Capital and National Institutional Quality: Are TIMSS, PISA, and National Average IQ Robust Predictors?," CESifo Working Paper Series 4790, CESifo.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bergh, Andreas & Bjørnskov, Christian, 2013. "Trust, Welfare States and Income Equality: What Causes What?," Working Paper Series 994, Research Institute of Industrial Economics.
    2. Berggren, Niclas & Bjørnskov, Christian, 2011. "Is the importance of religion in daily life related to social trust? Cross-country and cross-state comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 459-480.
    3. Blaine Robbins, 2012. "Institutional Quality and Generalized Trust: A Nonrecursive Causal Model," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 107(2), pages 235-258, June.
    4. Berggren, Niclas & Daunfeldt, Sven-Olov & Hellström, Jörgen, 2014. "Social trust and central-bank independence," European Journal of Political Economy, Elsevier, vol. 34(C), pages 425-439.
    5. Christian Bjørnskov & Pierre-Guillaume Méon, 2013. "Is trust the missing root of institutions, education, and development?," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 157(3-4), pages 641-669, December.
    6. Bjornskov, Christian & Bogetic, Zeljko & Hillman, Arye L. & Popovic, Milenko, 2014. "Trust and identity in a small, post-socialist, post-crisis society," Policy Research Working Paper Series 6828, The World Bank.
    7. Özcan, Burcu & Bjørnskov, Christian, 2011. "Social trust and human development," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 753-762.
    8. Christian Bjørnskov & Stefan Voigt, 2014. "Constitutional verbosity and social trust," Public Choice, Springer, vol. 161(1), pages 91-112, October.
    9. Blaine G. Robbins, 2011. "Neither government nor community alone: A test of state-centered models of generalized trust," Rationality and Society, , vol. 23(3), pages 304-346, August.
    10. Christian Bjørnskov, 2012. "On the determinants of honesty perceptions in the United States," Rationality and Society, , vol. 24(3), pages 257-294, August.
    11. Hernán Bejarano & Joris Gillet & Ismael Rodriguez‐Lara, 2018. "Do Negative Random Shocks Affect Trust and Trustworthiness?," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 563-579, October.
    12. Greiner, Ben & Ockenfels, Axel & Werner, Peter, 2012. "The dynamic interplay of inequality and trust—An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 355-365.
    13. Christian Bjørnskov & Pierre-Guillaume Méon, 2012. "Trust as the missing root of institutions, education, and development," Working Papers CEB 12-031, ULB -- Universite Libre de Bruxelles.
    14. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    15. Philip Keefer & Stephen Knack, 2008. "Social Capital, Social Norms and the New Institutional Economics," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 27, pages 701-725, Springer.
    16. Bjørnskov, Christian, 2021. "Civic honesty and cultures of trust," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 92(C).
    17. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120, Elsevier.
    18. Christian Bjørnskov & Pierre-Guillaume Méon, 2015. "The productivity of trust," Post-Print CEB, ULB -- Universite Libre de Bruxelles, June.
    19. Bjornskov, Christian & Bogetic, Zeljko & Hillman, Arye L. & Popovic, Milenko, 2014. "Trust and identity in a small, post-socialist, post-crisis society," Policy Research Working Paper Series 6828, The World Bank.
    20. Gur, Nurullah & Bjørnskov, Christian, 2017. "Trust and delegation: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 644-657.

    More about this item

    Keywords

    Social trust; Inequality; Welfare state;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D69 - Microeconomics - - Welfare Economics - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:35:y:2014:i:c:p:183-199. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.