Abstract
Alluding to theories about relative economic status and behavior, this paper studies if relative income mobility, or the intergenerational change in income positions, affects interpersonal trust. Empirically, the question is brought down to an application with US General Social Survey data. For the identification of a causal relationship, I use a structural approach and estimate a recursive bivariate probit that controls for selection on unobservables. Results suggest that trust increases if children have achieved an upward income movement away from their parents' income position, and it decreases with the experience of downward income mobility. Policy implications are also discussed.
Highlights
Over the last few decades, trust within societies, known as interpersonal or social trust, has turned out worthy of increasing attention from both public policy makers and social scientists
Alluding to theories about relative economic status and behavior, this paper studies if relative income mobility, or the intergenerational change in income positions, affects interpersonal trust
Under a structural approach, controlling for selection on unobservables, this paper aims to uncover a causal relationship between relative intergenerational income mobility and present-day interpersonal trust
Summary
Over the last few decades, trust within societies, known as interpersonal or social trust, has turned out worthy of increasing attention from both public policy makers and social scientists. Regarding determinants at the individual level, Alesina and La Ferrara (2002) find that trust is lower for blacks, women, people with traumatic experience, and those who live in societies with ethnic, race and economic heterogeneity. Zak and Knack (2002) study trust as an outcome of formal/informal institutions, while Aghion et al (2010) find a negative effect of market regulation on trust. Income inequality is another factor for which previous studies have consistently uncovered an effect on trust. The higher the gap between rich and poor in a society, the Shaleva IZA Journal of Labor & Development (2015) 4:15 lower the level of interpersonal trust on both cross-country (Zak and Knack 2001) and cross-community dimensions (Alesina and La Ferrara 2002)
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