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Is rising inequality related to deteriorating trust?

Bendz, Olof LU and Alagic, Sanjin LU (2020) NEKN01 20201
Department of Economics
Abstract
It is generally agreed upon that social trust is strongly associated with income inequality. However, this conclusion is mainly drawn from cross-country studies, which most likely suffer from endogeneity issues due to unobserved cultural, social and political variables affecting both trust and inequality. In this paper we collect trust data from six different surveys and make them comparable through an interpolation method, resulting in a large dataset covering 94 countries over 4 decades. We then use a panel data model with country-fixed effects, controlling for any time-invariant unobserved factors, as well as time-fixed effects, accounting for common year-specific trends. Thereby we approach the isolated marginal effect of inequality on... (More)
It is generally agreed upon that social trust is strongly associated with income inequality. However, this conclusion is mainly drawn from cross-country studies, which most likely suffer from endogeneity issues due to unobserved cultural, social and political variables affecting both trust and inequality. In this paper we collect trust data from six different surveys and make them comparable through an interpolation method, resulting in a large dataset covering 94 countries over 4 decades. We then use a panel data model with country-fixed effects, controlling for any time-invariant unobserved factors, as well as time-fixed effects, accounting for common year-specific trends. Thereby we approach the isolated marginal effect of inequality on trust. No general relationship between inequality and trust is found. Next, we investigate if there is a heterogeneity in the marginal effect, conditioned on legal system quality, as well as GDP per capita. Amongst countries with relatively bad legal systems, we find that inequality and trust are negatively associated, whilst there seems to be no relationship in countries with relatively good legal systems. (Less)
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author
Bendz, Olof LU and Alagic, Sanjin LU
supervisor
organization
alternative title
A panel data approach to the trust-inequality relationship
course
NEKN01 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
trust, inequality, panel data
language
English
id
9025983
date added to LUP
2020-08-29 10:35:04
date last changed
2021-01-27 15:56:53
@misc{9025983,
  abstract     = {{It is generally agreed upon that social trust is strongly associated with income inequality. However, this conclusion is mainly drawn from cross-country studies, which most likely suffer from endogeneity issues due to unobserved cultural, social and political variables affecting both trust and inequality. In this paper we collect trust data from six different surveys and make them comparable through an interpolation method, resulting in a large dataset covering 94 countries over 4 decades. We then use a panel data model with country-fixed effects, controlling for any time-invariant unobserved factors, as well as time-fixed effects, accounting for common year-specific trends. Thereby we approach the isolated marginal effect of inequality on trust. No general relationship between inequality and trust is found. Next, we investigate if there is a heterogeneity in the marginal effect, conditioned on legal system quality, as well as GDP per capita. Amongst countries with relatively bad legal systems, we find that inequality and trust are negatively associated, whilst there seems to be no relationship in countries with relatively good legal systems.}},
  author       = {{Bendz, Olof and Alagic, Sanjin}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Is rising inequality related to deteriorating trust?}},
  year         = {{2020}},
}