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Does trust favor macroeconomic stability?

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  • Marc Sangnier

    (PSE - Paris School of Economics, PJSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris)

Abstract

This paper investigates the relationship between trust and macroeconomic volatility. In a cross section of countries, we show that higher trust is associated with lower macroeconomic instability. We use the inherited trust of Americans as an instrumental variable of trust in their origin country to overcome all potential reverse causality concerns. We use changes in inherited trust over the XXth century to show that increasing trust also decreases volatility across time. Thus, trust is shown to be an important determinant of macroeconomic stability both in space and time. Finally, we show that trust reduces investment volatility but not public expenditure volatility.

Suggested Citation

  • Marc Sangnier, 2009. "Does trust favor macroeconomic stability?," PSE Working Papers halshs-00575021, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00575021
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00575021
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    Cited by:

    1. Banerjee, Ritwik, 2018. "On the interpretation of World Values Survey trust question - Global expectations vs. local beliefs," European Journal of Political Economy, Elsevier, vol. 55(C), pages 491-510.
    2. Bergh, Andreas & Öhrvall, Richard, 2016. "The Moldable Young: How Institutions Impact Social Trust," Working Paper Series 1132, Research Institute of Industrial Economics.
    3. Giacomo Degli Antoni & Fabio Sabatini, 2013. "Disentangling the relationship between nonprofit and social capital: The role of social cooperatives and social welfare associations in the development of networks of strong and weak ties," Euricse Working Papers 1354, Euricse (European Research Institute on Cooperative and Social Enterprises).
    4. repec:spr:anresc:v:60:y:2018:i:3:d:10.1007_s00168-015-0729-2 is not listed on IDEAS
    5. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    6. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
    7. Litina, Anastasia, 2014. "Great Expectations: The Persistent Effect of Institutions on Culture," MPRA Paper 58639, University Library of Munich, Germany.
    8. Christian Alexander Belabed & Mariya Hake, 2018. "Income inequality and trust in national governments in Central, Eastern and Southeastern Europe," Working Papers 222, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Julie Moschion & Domenico Tabasso, 2014. "Trust of second-generation immigrants: intergenerational transmission or cultural assimilation?," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-30, December.
    10. Bergh, Andreas & Bjørnskov, Christian, 2016. "Burying the Bumblebee Once and for All:," Working Paper Series 1119, Research Institute of Industrial Economics.
    11. Carin van der Cruijsen, Maurice Doll and Frank van Hoenselaar, 2018. "Trust in other people and the usage of peer platform markets," DNB Working Papers 608, Netherlands Central Bank, Research Department.
    12. repec:eee:jcecon:v:46:y:2018:i:4:p:1146-1157 is not listed on IDEAS

    More about this item

    Keywords

    social capital; trust; volatility; macroeconomic stability;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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