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Regulation and Distrust

  • Philippe Aghion
  • Yann Algan
  • Pierre Cahuc
  • Andrei Shleifer

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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File URL: http://www.nber.org/papers/w14648.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14648.

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Date of creation: Jan 2009
Publication status: published as Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1015-1049, August.
Handle: RePEc:nbr:nberwo:14648
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