Building trust: public policy, interpersonal trust and economic development
Zak & Knack (2001) demonstrate that interpersonal trust substantially impacts economic growth, and that sufficient interpersonal trust is necessary for economic development. To investigate the ability of policy-makers to affect trust levels, this paper builds a formal model characterizing public policies that can raise trust. The model is used to derive optimal funding for trust-raising policies when policy-makers seek to stimulate economic growth. Policies examined include those that increase freedom of association, build civic cultures, enhance contract enforcement, reduce income inequality, and raise educational levels. Testing the model's predictions, we find that only freedom, redistributive transfers, and education efficiently and robustly stimulate prosperity. They do this by strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding, all of which raise trust.
|Date of creation:||2001|
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- Knack, Stephen, 2000. "Social capital and the quality of Government : evidence from the U.S. States," Policy Research Working Paper Series 2504, The World Bank.
- Vernon L. Smith, 1998. "The Two Faces of Adam Smith," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 2-19, July.
- Chetan Ghate & Paul J. Zak, "undated".
"Growth of Government And The Politics of Fiscal Policy,"
Claremont Colleges Working Papers
2000-19, Claremont Colleges.
- Ghate, Chetan & Zak, Paul J., 2002. "Growth of government and the politics of fiscal policy," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 435-455, December.
- Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
- Yi Feng & Paul J. Zak, 1999. "The Determinants of Democratic Transitions," Journal of Conflict Resolution, Peace Science Society (International), vol. 43(2), pages 162-177, April.
- Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
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