IDEAS home Printed from https://ideas.repec.org/p/bdi/wptemi/td_973_14.html
   My bibliography  Save this paper

Inequality and trust: new evidence from panel data

Author

Listed:
  • Guglielmo Barone

    (Bank of Italy)

  • Sauro Mocetti

    (Bank of Italy)

Abstract

The relationship between inequality and trust has attracted the interest of many scholars who have found a negative relationship between the two variables. However, the causal link from inequality to trust is far from being identified and the existing empirical evidence admittedly remains weak, as the omitted variable bias, reverse causation and/or measurement error might be at work. In this paper, we reconsider the country-level evidence to address this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time-invariant variables. Second, we provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, income inequality significantly and negatively affects generalised trust. However, this result only holds for developed countries. We also explore new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality � such as the Gini index and top income shares � and dynamic inequality � proxied by intergenerational income mobility.

Suggested Citation

  • Guglielmo Barone & Sauro Mocetti, 2014. "Inequality and trust: new evidence from panel data," Temi di discussione (Economic working papers) 973, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_973_14
    as

    Download full text from publisher

    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2014/2014-0973/en_tema_973.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    3. Enrico Moretti, 2010. "Local Multipliers," American Economic Review, American Economic Association, vol. 100(2), pages 373-377, May.
    4. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    5. Alberto Alesina & Eliana La Ferrara, 2000. "Participation in Heterogeneous Communities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 847-904.
    6. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    7. Angus Deaton & Christina Paxson, 1997. "The effects of economic and population growth on national saving and inequality," Demography, Springer;Population Association of America (PAA), vol. 34(1), pages 97-114, February.
    8. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September.
    9. Entorf, Horst & Gollac, Michel & Kramarz, Francis, 1999. "New Technologies, Wages, and Worker Selection," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 464-491, July.
    10. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-338, May.
    11. Miles Corak, 2006. "Do Poor Children Become Poor Adults? Lessons from a Cross-Country Comparison of Generational Earnings Mobility," Research on Economic Inequality, in: Dynamics of Inequality and Poverty, pages 143-188, Emerald Group Publishing Limited.
    12. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
    13. Anthony Atkinson & Thomas Piketty, 2010. "Top Incomes : A Global Perspective," PSE-Ecole d'économie de Paris (Postprint) halshs-00754875, HAL.
    14. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    15. John E. Roemer, 2002. "Equality of opportunity: A progress report," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 19(2), pages 455-471.
    16. David Card & Francis Kramarz & Thomas Lemieux, 1999. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 843-877, August.
    17. Anthony Atkinson & Thomas Piketty, 2007. "Top incomes over the twentieth century: A contrast between continental european and english-speaking countries," Post-Print halshs-00754859, HAL.
    18. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January.
    19. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    20. Jan Fagerberg & Pär Hansson & Lars Lundberg & Arne Melchoir (ed.), 1997. "Technology and International Trade," Books, Edward Elgar Publishing, number 1192, December.
    21. Eli Bekman & John Bound & Stephen Machin, 1998. "Implications of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1245-1279.
    22. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1215-1244.
    23. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    24. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," American Economic Review, American Economic Association, vol. 96(2), pages 189-194, May.
    25. Lars Torpe & Henrik Lolle, 2011. "Identifying Social Trust in Cross-Country Analysis: Do We Really Measure the Same?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 103(3), pages 481-500, September.
    26. Van Reenen, John, 2011. "Wage inequality, technology and trade: 21st century evidence," Labour Economics, Elsevier, vol. 18(6), pages 730-741.
    27. Atkinson, A. B. & Piketty, Thomas (ed.), 2007. "Top Incomes Over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries," OUP Catalogue, Oxford University Press, number 9780199286881, Decembrie.
    28. Andrew Leigh, 2006. "Trust, Inequality and Ethnic Heterogeneity," The Economic Record, The Economic Society of Australia, vol. 82(258), pages 268-280, September.
    29. Mocetti Sauro, 2007. "Intergenerational Earnings Mobility in Italy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(2), pages 1-25, December.
    30. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413, Enero-Abr.
    31. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
    32. Leigh, Andrew, 2006. "Does equality lead to fraternity?," Economics Letters, Elsevier, vol. 93(1), pages 121-125, October.
    33. Justina A.V. Fischer & Benno Torgler, 2006. "The Effect of Relative Income Position on Social Capital," Economics Bulletin, AccessEcon, vol. 26(4), pages 1-20.
    34. Oecd, 1998. "OECD Data on Skills: Employment by Industry and Occupation," OECD Science, Technology and Industry Working Papers 1998/4, OECD Publishing.
    35. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    36. Bjørnskov, Christian, 2006. "The Determinants of Trust," Ratio Working Papers 86, The Ratio Institute.
    37. Atkinson, A. B. & Piketty, Thomas (ed.), 2010. "Top Incomes: A Global Perspective," OUP Catalogue, Oxford University Press, number 9780199286898, Decembrie.
    38. Jordahl, Henrik, 2007. "Inequality and Trust," Working Paper Series 715, Research Institute of Industrial Economics.
    39. Giuseppe Albanese & Guido Blasio, 2014. "Who trusts others more? A cross-European study," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 803-820, November.
    40. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    41. 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.
    42. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    43. Facundo Alvaredo & Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 3-20, Summer.
    44. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    45. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
    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. Yamamura, Eiji, 2008. "The role of social capital in homogeneous society: Review of recent researches in Japan," MPRA Paper 11385, University Library of Munich, Germany.
    2. Jordahl, Henrik, 2007. "Inequality and Trust," Working Paper Series 715, Research Institute of Industrial Economics.
    3. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute of Labor Economics (IZA).
    4. Andrea Tesei, 2015. "Trust and Racial Income Inequality: Evidence from the U.S," CEP Discussion Papers dp1331, Centre for Economic Performance, LSE.
    5. Filip Novokmet, 2018. "The long-run evolution of inequality in the Czech Lands, 1898-2015," PSE Working Papers hal-02878212, HAL.
    6. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    7. Bukowski, Pawel & Novokmet, Filip, 2019. "Between communism and capitalism: long-term inequality in Poland, 1892-2015," LSE Research Online Documents on Economics 102814, London School of Economics and Political Science, LSE Library.
    8. Filip Novokmet, 2018. "The long-run evolution of inequality in the Czech Lands, 1898-2015," World Inequality Lab Working Papers hal-02878212, HAL.
    9. Hynninen, Sanna-Mari & Ojala, Jari & Pehkonen, Jaakko, 2013. "Technological change and wage premiums: Historical evidence from linked employer–employee data," Labour Economics, Elsevier, vol. 24(C), pages 1-11.
    10. Asep Suryahadi & Ridho Al Izzati & Daniel Suryadarma & Teguh Dartanto, 2023. "How Inequality Affects Trust in Institutions: Evidence from Indonesia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 18(1), pages 73-91, January.
    11. Pawel Bukowski & Filip Novokmet, 2019. "Between communism and capitalism: long-term inequality in Poland, 1892-2015," CEP Discussion Papers dp1628, Centre for Economic Performance, LSE.
    12. Filip Novokmet, 2018. "The long-run evolution of inequality in the Czech Lands, 1898-2015," Working Papers hal-02878212, HAL.
    13. Roberta Dessì & Salvatore Piccolo, 2008. "Two is Company, N is a Crowd? Merchant Guilds and Social Capital," CSEF Working Papers 202, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 12 Jul 2009.
    14. Oasis Kodila-Tedika & Julius Agbor, 2016. "Does Trust Matter for Entrepreneurship: Evidence from a Cross-Section of Countries," Economies, MDPI, vol. 4(1), pages 1-17, March.
    15. Sabatini, Fabio, 2006. "The Empirics of Social Capital and Economic Development: A Critical Perspective," Knowledge, Technology, Human Capital Working Papers 12097, Fondazione Eni Enrico Mattei (FEEM).
    16. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2011. "Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(3), pages 393-415, September.
    17. Eric D Gould, 2019. "Explaining the Unexplained: Residual Wage Inequality, Manufacturing Decline and Low-skilled Immigration," The Economic Journal, Royal Economic Society, vol. 129(619), pages 1281-1326.
    18. Rolf Aaberge & François Bourguignon & Andrea Brandolini & Francisco H. G. Ferreira & Janet C. Gornick & John Hills & Markus Jäntti & Stephen P. Jenkins & Eric Marlier & John Micklewright & Brian Nolan, 2017. "Tony Atkinson and his Legacy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(3), pages 411-444, September.
    19. Puhani Patrick A., 2008. "Transatlantic Differences in Labour Markets: Changes in Wage and Non-Employment Structures in the 1980s and the 1990s," German Economic Review, De Gruyter, vol. 9(3), pages 312-338, August.
    20. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U. S. Wage Inequality: Re-Assessing the Revisionists," Harvard Institute of Economic Research Working Papers 2095, Harvard - Institute of Economic Research.

    More about this item

    Keywords

    trust; inequality; top incomes; intergenerational mobility;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:bdi:wptemi:td_973_14. See general information about how to correct material in RePEc.

    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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdigvit.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.