Trust and attitudes toward income inequality: Does individualism matter?

Abstract

In the last decade authors have increasingly examined the role of two cultural traits – trust and individualism – on a variety of economic outcomes ranging from gendered attitudes to entrepreneurship, human capital accumulation, and economic development. While both have positive effects, recent literature suggests that the effects of trust are often conditional on other variables, and this aspect has been neglected in the literature. Indeed, a recent paper found that with respect to gendered attitudes, there are important interactions between the traits of trust and individualism. Building on this foundation we explore how views of trust and individualism interact to affect attitudes about income inequality. Our results show that while views regarding social trust generally positively affect the desire for income equality, this effect is strengthened in the presence of high individualism. Alternatively stated, distrust in highly individualistic environments leads to a greater desire for income differences (inequality). Our result highlights the important role played by market-based price and profit incentives in fostering economic activity and exchange in larger, impersonal extended orders where interpersonal trust and reputational effects are generally absent (in contrast to personal, small group exchange). Our results are robust to a variety of techniques to establish identification and account for sample selection and omitted variable bias.