National income and trust

Abstract

We explore whether national economic prosperity enhances mutual generalized trust. This is done using a panel data of multiple waves of the World Values Surveys, whereby national income levels are instrumented for using exogenous oil price shocks. We find significant and substantial effects of national income on the level of trust in the economy. In particular, a 1% increase in national income tends to cause an average increase of 1 percentage point (or more) in the likelihood that a person becomes trustful. We also identify crime and corruption as potential mechanisms that may lead to the reported causal effect and explore heterogeneous effects across individuals.