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Trust, Racial Fragmentation and Income Inequality: New Evidence from the U.S

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  • Andrea Tesei

Abstract

Existing studies of trust formation in U.S. metropolitan areas have found that trust is lower when there is more income inequality and greater racial fragmentation. I add to this literature by examining the role of income inequality between racial groups (racial income inequality). I find that greater racial income inequality reduces trust. Also, racial fragmentation is no longer a significant determinant of trust once racial income inequality is accounted for. This result is consistent with a simple conceptual framework where concurrent differences in race and income are especially detrimental for trust formation. I find empirical support for further implications deriving from this assumption. In particular, I show that racial income inequality has a more detrimental effect in more racially fragmented communities and that trust falls more in minority groups than in the majority group when racial income inequality increases.

Suggested Citation

  • Andrea Tesei, 2014. "Trust, Racial Fragmentation and Income Inequality: New Evidence from the U.S," CESifo Working Paper Series 4718, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4718
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4718.pdf
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    References listed on IDEAS

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    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. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    3. Andrew Leigh, 2006. "Trust, Inequality and Ethnic Heterogeneity," The Economic Record, The Economic Society of Australia, vol. 82(258), pages 268-280, September.
    4. 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.
    5. Rajiv Sethi & Rohini Somanathan, 2004. "Inequality and Segregation," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1296-1321, December.
    6. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 905-950.
    7. Fabian Bornhorst & Andrea Ichino & Oliver Kirchkamp & Karl Schlag & Eyal Winter, 2010. "Similarities and differences when building trust: the role of cultures," Experimental Economics, Springer;Economic Science Association, vol. 13(3), pages 260-283, September.
    8. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
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    Cited by:

    1. Monica Langella & Alan Manning, 2016. "Diversity and Neighbourhood Satisfaction," CEP Discussion Papers dp1459, Centre for Economic Performance, LSE.
    2. Sabatini, Fabio & Sarracino, Francesco, 2013. "Will Facebook save or destroy social capital? An empirical investigation into the effect of online interactions on trust and networks," EconStor Preprints 88145, ZBW - German National Library of Economics.
    3. Fabio Sabatini & Francesco Sarracino, 2014. "E-participation: Social Capital and the Internet," Working Papers 2014.81, Fondazione Eni Enrico Mattei.
    4. Alberto Alesina & Stelios Michalopoulos & Elias Papaioannou, 2016. "Ethnic Inequality," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 428-488.
    5. Thomas Breda & Alan Manning, 2016. "Diversity and Social Capital Within the Workplace: Evidence from Britain," CEP Discussion Papers dp1460, Centre for Economic Performance, LSE.

    More about this item

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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