Trust, Welfare States and Income Equality: Sorting out the causality

Andreas Bergh, LU & IFNChristian Bjørnskov, Aarhus University

Background

Trust: WVS, Inequality: SWIID.

Trust Income equality

Welfare state

Trust -> Welfare state size: Bergh & Bjørnskov (2011) using instruments (temperature, constitutional monarchy, grammar)

Trust -> Welfare state size: Bjørnskov & Svendsen (2012) using US 3rd generation immigrants

Welfare state universality -> trust (Kumlin & Rothstein, individual level data)

Historical Trust Levels Predict the Current Sizeof the Welfare State

Excludes outliers

ten-year averages of government ideology, taken from the Database of PoliticalInstitutions

KYKLOS, 2011:1, p. 1–19.

• Trust -> welfare state -> equality• ... equality -> trust (positive feed back dynamic)• or• trust -> equality• ?

Does trust cause equality?

Inequality in 2 is higher than in 1.But inequality is lowest in 3.

A structural equations model

Monarchy

Intensity of religiosity

Kuznets curves

Rel. composition

Legal origin

IQTrust Inequality

Postcommunist

Nordic country

Regions

GDP per capita and its squared term, the degree of democracy and its squared term), dummies capturing variations in religious affiliation, and a control for common law countries, IQ scores to capture inequality arising from skills-based technological progress.

Results

Inequality gives lower trust.

Trust lowers inequality.

Including the welfare state

Four conclusions

• Trust aid countries in building and maintaining welfare states (Nannestad 2008, Rothstein 2001)

• Welfare states increase equality

• Trust increases equality - also when controlling for welfare state size!

• Welfare states do not increase trust

Trust, government size, and growth.