The Economics of Trust

From the IMFBlog:

The Economics of Trust: Trust in other people – the glue that holds society together – is increasingly in short supply in the United States and Europe, and inequality may be the culprit.

In surveys over the past 40 years, the share of Americans who say that most people can be trusted has fallen to 33 percent from about 50 percent. The erosion of trust coincides with widening disparities in incomes.

But does inequality reduce trust? There is evidence that it does, according to research by Eric D. Gould, a professor of economics at Hebrew University, and Alexander Hijzen, a senior economist at the Organisation for Economic Cooperation and Development. They analyzed data from the American National Election Survey from 1980 to 2010. The results show that wider income inequality explains 44 percent of the drop in trust. The authors, who reported their findings in an IMF working paper, found similar results in Europe…