In Public Education Expenditures We Trust: Does Trust Increase Support for Public Education Expenditures?

Abstract

AbstractTrust is one crucial prerequisite for the welfare state. However, very few empirical studies exist that help us understand the mechanisms through which trust affects the welfare state. Influencing public support for developing friendly public policies might be one of these mechanisms. In this study, we use unique micro data from 34 countries to investigate the relationship between trust and support for public education expenditures. We use the Life in Transition Survey (LiTS) conducted by the European Bank for Reconstruction and Development (EBRD) and the World Bank in 2010. Our empirical results show that trust has a positive effect on support for public education expenditures. Our results are robust when controlled for various individual characteristics and country fixed effects, tested using OLS and Probit models and different samples. This empirical evidence helps us understand the micro foundations of support for public education expenditures.Keywords: Trust * Social capital * Tax * Public education expendituresJEL Classification: H31* O12 * Z13In his classic book, Putnam (1993) emphasizes the importance of social capital to institutions and economic development. Trust, defined as the propensity of a population to believe in the trustworthiness of other people whom they do not know personally, is one of the most important ingredients of social capital (see Guiso, Sapienza, & Zingales, 2006; Tabellini, 2008). Fukuyama (1995) argues that trust is one of the fundamental causes of large differences in economic prosperity levels between countries. Following the footsteps of Putnam (1993) and Fukuyama (1995), the empirical literature shows that trust is positively related to economic growth (Algan & Cahuc, 2010; Hovarht, 2013; Knack & Keefer, 1997; Knack & Zak, 2001), financial development (Guiso, Sapienza, & Zingales, 2004, 2008), the existence of a welfare state (Bergh & Bjornskov, 2011) a lighter regulatory burden (Aghion, Algan, Chauc, & Shleifer, 2010; Pinotti, 2012), and increased institutional development (Bjornskov, 2009; Knack, 2002; La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1997; Tabellini, 2008;). Recent empirical results also suggest that trust has a positive effect on education (Bjornskov, 2009; Bjornskov & Meon, 2013; Dearmon & Grier, 2011; Papagapitos & Riley, 2009).As a contribution to this body of empirical literature, our study examines whether trust affects popular support for public education expenditures. Human capital has taken on a central role in the endogenous economic growth models, in where formal education often considered the primary source for human capital accumulation (Barro, 1991; Blankenau & Simpson, 2004; Ciccone & Papaionnou, 2007; Lucas, 1988; Nelson & Phelps, 1966). Since governments play a central role in human capital accumulation by funding the majority of primary and secondary education throughout the world, a potential link could exist between public education expenditures and economic growth. However, empirical evidence shows mixed results concerning the effect of public education expenditures on economic growth. Blankenau and Simpson (2004) offer one theoretical explanation for this ambiguity, namely that public education expenditures might crowd out other factors that enhance economic growth. When non-distortionary taxes (on labor and capital income) are used to finance expenditures, public education spending crowds out investment in both physical capital and private human capital investment. Therefore, growth would decrease with higher public education expenditures. In contrast, when consumption taxes are used to finance education, public education spending has no effect on private human capital investment. In this case, growth is increasing in line with public education expenditures. In a more recent theoretical work, Greiner (2008) shows that excessive spending on public education increases public debt, crowds out private investment, and reduces economic growth. …