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Inequality and trust: new evidence from panel data

Author

Listed:
  • Guglielmo Barone

    (Bank of Italy, Regional Economic Research Division, Bologna Branch, The Rimini Centre for Economic Analysis, Italy)

  • Sauro Mocetti

    (Bank of Italy, Regional Economic Research Division, Bologna Branch)

Abstract

The relationship between inequality and trust has attracted the interest of many scholars who have found a negative relationship between the two variables. However, the causal link from inequality to trust is far from being identified and the existing empirical evidence admittedly remains weak, as the omitted variable bias, reverse causation and/or measurement error might be at work. In this paper, we reconsider the country-level evidence to address this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time-invariant variables. Second, we provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, income inequality significantly and negatively affects generalised trust. However, this result only holds for developed countries. We also explore new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality – such as the Gini index and top income shares – and dynamic inequality – proxied by intergenerational income mobility.

Suggested Citation

  • Guglielmo Barone & Sauro Mocetti, 2014. "Inequality and trust: new evidence from panel data," Working Paper series 25_14, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:25_14
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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