On inequality, growth and trust: some evidence from the lab. Issue 4 (21st August 2022)

• Record Type: Journal Article
• Authors: D'Amato, Marcello; O'Higgins, Niall; Stimolo, Marco
• Is Part Of: Journal of institutional economics. Volume 18:Issue 4(2022)
• Page Start: 621
• Page End: 636
• Publication Date: 2022-08-21
• Subjects: Generalized trust -- growth -- inequality -- recession; C91 -- D31 -- D90; Institutional economics -- Periodicals; 330.1552
• DOI: 10.1017/S1744137421000552
• Languages: English
• ISSNs: 1744-1374

Abstract

Abstract: In a novel experimental design, we investigate the impact of exogenous variation in economic growth and inequality on trusting behaviour. In addition to a control with uniform endowment, three treatments were implemented where the initial endowment is exogenously changed to produce inequality and three growth scenarios where average endowments increase (boom), decrease (recession) or remain unaltered (steady state). We find that aggregate trust and trustworthiness both decrease due to the induced heterogeneity in endowments. Also, trust (but not trustworthiness) decreases (increases) due to recessions (booms). The impact of inequality on trust is greatest in a recession and absent in a boom. These aggregate effects are driven mainly by the reactions of those who, after treatment, end up at the bottom of the endowment distribution. These findings are close in sign and in the order of magnitude to those reported in observational studies on the relationship between growth, inequality and trust.