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Regulation and Distrust

  • Philippe Aghion

    (Department of Economics, Harvard University - (-))

  • Yann Algan

    (OFCE - Centre de recherche en économie de Sciences Po - Sciences Po)

  • Pierre Cahuc

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Andrei Shleifer

    (Department of Economics, Harvard University - (-))

In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.

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Paper provided by HAL in its series Working Papers with number hal-00396268.

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Date of creation: 17 Jun 2009
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Handle: RePEc:hal:wpaper:hal-00396268
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