IDEAS home Printed from https://ideas.repec.org/p/onb/oenbwp/211.html
   My bibliography  Save this paper

Inequality, Perception Biases and Trust

Author

Abstract

We present a theoretical framework that links trust, trustworthiness and inequality. It is assumed that an individual's level of interpersonal trust is related to expected trustworthiness among his reference group and that trustworthiness decreases when interpersonal income differences increase. As a consequence, inequality affects trust via the individual-specific perception of inequality which might not coincide with aggregate measures of inequality like the Gini coefficient. We work out the implications of our model for empirical estimations of the trust-inequality nexus and show that such regressions are very likely to understate the true effect of inequality. This might lead to the erroneous conclusion that inequality exerts no effect on trust. Survey data from Austria support the predictions of our framework. Individual-specific perceptions of inequality have a strong negative effect on trust while aggregate measures of inequality show no significant relation.

Suggested Citation

  • Markus Knell & Helmut Stix, 2017. "Inequality, Perception Biases and Trust," Working Papers 211, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:211
    as

    Download full text from publisher

    File URL: https://www.oenb.at/dam/jcr:12ae3f67-37c4-4c12-9478-a41be43c966a/Working-Paper-211.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Enders, Zeno & Jung, Philip & Müller, Gernot J., 2013. "Has the Euro changed the business cycle?," European Economic Review, Elsevier, vol. 59(C), pages 189-211.
    2. Jeffrey V. Butler & Paola Giuliano & Luigi Guiso, 2016. "The Right Amount Of Trust," Journal of the European Economic Association, European Economic Association, vol. 14(5), pages 1155-1180, October.
    3. Gustavsson, Magnus & Jordahl, Henrik, 2008. "Inequality and trust in Sweden: Some inequalities are more harmful than others," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 348-365, February.
    4. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    5. John Hudson, 2006. "Institutional Trust and Subjective Well‐Being across the EU," Kyklos, Wiley Blackwell, vol. 59(1), pages 43-62, February.
    6. Slemrod, Joel, 2006. "The Role of Misconceptions in Support for Regressive Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(1), pages 57-75, March.
    7. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    8. Knell, Markus & Stix, Helmut, 2020. "Perceptions of inequality," European Journal of Political Economy, Elsevier, vol. 65(C).
    9. Butler Jeffrey V., 2014. "Trust, Truth, Status and Identity: An Experimental Inquiry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-46, February.
    10. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    11. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute of Labor Economics (IZA).
    12. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
    13. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
    14. Ilyana Kuziemko & Michael I. Norton & Emmanuel Saez & Stefanie Stantcheva, 2015. "How Elastic Are Preferences for Redistribution? Evidence from Randomized Survey Experiments," American Economic Review, American Economic Association, vol. 105(4), pages 1478-1508, April.
    15. Cruces, Guillermo & Perez-Truglia, Ricardo & Tetaz, Martin, 2013. "Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment," Journal of Public Economics, Elsevier, vol. 98(C), pages 100-112.
    16. Falk, Armin & Zehnder, Christian, 2013. "A city-wide experiment on trust discrimination," Journal of Public Economics, Elsevier, vol. 100(C), pages 15-27.
    17. repec:hal:spmain:info:hdl:2441/432sbils8u9t7qa99cii5psht1 is not listed on IDEAS
    18. Ruffle, Bradley J. & Sosis, Richard, 2006. "Cooperation and the in-group-out-group bias: A field test on Israeli kibbutz members and city residents," Journal of Economic Behavior & Organization, Elsevier, vol. 60(2), pages 147-163, June.
    19. Gachter, Simon & Herrmann, Benedikt & Thoni, Christian, 2004. "Trust, voluntary cooperation, and socio-economic background: survey and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 505-531, December.
    20. Buchan, Nancy R. & Croson, Rachel T.A. & Solnick, Sara, 2008. "Trust and gender: An examination of behavior and beliefs in the Investment Game," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 466-476, December.
    21. Mathias Moser & Matthias Schnetzer, 2017. "The income–inequality nexus in a developed country: small-scale regional evidence from Austria," Regional Studies, Taylor & Francis Journals, vol. 51(3), pages 454-466, March.
    22. Daniele, Gianmarco & Geys, Benny, 2015. "Interpersonal trust and welfare state support," European Journal of Political Economy, Elsevier, vol. 39(C), pages 1-12.
    23. Shlomo Yitzhaki, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(2), pages 321-324.
    24. Červená, Marianna & Schneider, Martin, 2014. "Short-term forecasting of GDP with a DSGE model augmented by monthly indicators," International Journal of Forecasting, Elsevier, vol. 30(3), pages 498-516.
    25. John D. Hey & Peter J. Lambert, 1980. "Relative Deprivation and the Gini Coefficient: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(3), pages 567-573.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gimpelson, V. & Chernina, E., 2020. "How we perceive our place in income distribution and how the perceptions deviate from reality," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 30-56.
    2. Knell, Markus & Stix, Helmut, 2020. "Perceptions of inequality," European Journal of Political Economy, Elsevier, vol. 65(C).
    3. Christian Alexander Belabed & Mariya Hake, 2018. "Income inequality and trust in national governments in Central, Eastern and Southeastern Europe," Working Papers 222, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Knight, John & Gunatilaka, Ramani, 2022. "Income inequality and happiness: Which inequalities matter in China?," China Economic Review, Elsevier, vol. 72(C).
    5. Verhoeven, Loesje & Ritzen, Jo, 2022. "Globalisation increased trust in northern and western Europe between 2002 and 2018," MERIT Working Papers 2022-005, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. M. D. R. Evans & Jonathan Kelley, 2018. "Strong Welfare States Do Not Intensify Public Support for Income Redistribution, but Even Reduce It among the Prosperous: A Multilevel Analysis of Public Opinion in 30 Countries," Societies, MDPI, vol. 8(4), pages 1-52, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Javier Olivera, 2015. "Changes in Inequality and Generalized Trust in Europe," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(1), pages 21-41, October.
    2. Antonino Callea & Dalila De Rosa & Giovanni Ferri & Francesca Lipari & Marco Costanzi, 2022. "Can Emotional Intelligence promote Individual Wellbeing and protect from perceptions' traps?," CERBE Working Papers wpC39, CERBE Center for Relationship Banking and Economics.
    3. Perotti, Roberto & Labartino, Giovanna, 2011. "Academic Dynasties: Decentralization and Familism in the Italian Academia," CEPR Discussion Papers 8645, C.E.P.R. Discussion Papers.
    4. Tesei, Andrea, 2015. "Trust and racial income inequality: evidence from the U.S," LSE Research Online Documents on Economics 61029, London School of Economics and Political Science, LSE Library.
    5. Martin G. Kocher, 2015. "How Trust in Social Dilemmas Evolves with Age," CESifo Working Paper Series 5447, CESifo.
    6. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09iguam2l20 is not listed on IDEAS
    7. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    8. Anguera-Torrell, Oriol, 2020. "Entrepreneurship, trust and corruption," European Journal of Political Economy, Elsevier, vol. 65(C).
    9. Bergh, Andreas & Bjørnskov, Christian, 2014. "Trust, welfare states and income equality: Sorting out the causality," European Journal of Political Economy, Elsevier, vol. 35(C), pages 183-199.
    10. Carin Cruijsen & Jakob Haan & David-Jan Jansen, 2016. "Trust and Financial Crisis Experiences," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 577-600, June.
    11. Andrew C. Forrester & Alex Nowrasteh, 2023. "Trust plays no role in regional U.S. economic development—And five other problems with the trust literature," Kyklos, Wiley Blackwell, vol. 76(3), pages 461-477, August.
    12. Knell, Markus & Stix, Helmut, 2020. "Perceptions of inequality," European Journal of Political Economy, Elsevier, vol. 65(C).
    13. Jordahl, Henrik, 2007. "Inequality and Trust," Working Paper Series 715, Research Institute of Industrial Economics.
    14. Horváth, Roman, 2013. "Does trust promote growth?," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 777-788.
    15. Kalischer Wellander, Benjamin & Sanandaji, Tino, 2018. "Tracing the Historic Roots of Generalized Trust," SSE Working Paper Series in Economic History 2018:1, Stockholm School of Economics, revised 10 May 2018.
    16. Karaja, Elira & Rubin, Jared, 2022. "Θ The cultural transmission of trust norms: Evidence from a lab in the field on a natural experiment," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 1-19.
    17. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
    18. Ruben Durante & Giovanna Labartino & Roberto Perotti, 2011. "Academic Dynasties: Decentralization and familism ind the Italian academia," Working Papers hal-03609936, HAL.
    19. Giuseppe Albanese & Guido de Blasio & Paolo Sestito, 2013. "Trust and preferences: evidence from survey data," Temi di discussione (Economic working papers) 911, Bank of Italy, Economic Research and International Relations Area.
    20. Andrea Tesei, 2015. "Trust and Racial Income Inequality: Evidence from the U.S," CEP Discussion Papers dp1331, Centre for Economic Performance, LSE.
    21. Olivera, J., 2013. "GINI DP 80: On changes in general trust in Europe," GINI Discussion Papers 80, AIAS, Amsterdam Institute for Advanced Labour Studies.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:211. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Markus Knell (email available below). General contact details of provider: https://edirc.repec.org/data/oenbbat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.