Income Inequality, Life Satisfaction Inequality and Trust: A Cross Country Panel Analysis

Abstract

Literature has argued that income inequality crowds out trust. However, whether income inequality makes people less trusting depends on how they perceive income inequality within their personal social context and social cognition. In this paper we therefore conjecture that the relationship of income inequality to trust depends on how income inequality affects inequality of life satisfaction. If life satisfaction inequality is high, distrust is generated among the least happy. This will increase polarization and the risk of rebellion, thereby also affecting trust among the happier people. Thus, life satisfaction inequality may be an essential factor in the relationship between income inequality and trust. In previous literature, the potential mediating role of life satisfaction inequality in the relationship between income inequality and social trust has not yet received attention. We test our model by panel analysis on 25 OECD countries in the period 1990-2014. The panel analysis shows that income inequality increases life satisfaction inequality and that both income inequality and life satisfaction inequality have a significant negative impact on social trust. Mediation tests show complementary mediation: besides the direct negative effect of income inequality on trust, we find an indirect effect mediated by life satisfaction inequality. This indirect effect counts for 20% of the total effect of income inequality on trust. Our results imply that policy options for increasing trust are not limited to countering income inequality, but can also include policy measures that directly reduce inequality of life satisfaction.

Patterns of Trust and Subjective Well-Being Across Europe: New Insights from Repeated Cross-Sectional Analyses Based on the European Social Survey 2002–2016

“…Ngamaba et al 2018), we found no effect of income inequality on SWB. Nevertheless, previous research showed that income inequality has a negative effect on life satisfaction inequality as well as on social trust (Graafland and Lous 2019), which implies that reducing income inequality can be a desirable goal after all (see also Deeming and Jones 2015: 277). Regarding economic growth, the Easterlin-paradoxon states that economic growth only fosters subjective well-being in the short run but not in the long run (10 years or more; Easterlin et al 2010).…”

Does your neighborhood protect you from being depressed? A study on social trust and depression in Indonesia

“…Currently, Indonesia is facing rising and stagnant inequality [43, 44]. Income inequality is a potential factor that may lead to negative effects on wellbeing and/or life satisfaction which then erodes social trust [45–47] while social deprivation may lead to depression [48]. Furthermore, for households with lower socio-economic status, community involvement is also low [49], which is a potential cause for low social trust and depression.…”

When and Where Global meets Local: A multilevel analysis of determinants of social trust in the Emirate of Abu Dhabi

“…These are in general consistent with the findings elsewhere (Sønderskov & Dinesen, 2016). For example, multiple studies showed a robust relation between social trust and subjective well‐being (Glatz & Eder, 2020; Graafland & Lous, 2019; Puntscher et al., 2015). Overall, the findings presented above appear to reinforce the argument that tradition, norms, social participation, social networks, and globalization all are at play.…”

“…A positive association between the level of trust and income is also confirmed (Hindman & Yamamoto, 2011; Putnam, 2000). Economic inequality may have a direct negative effect on social trust (Graafland & Lous, 2019; Ivarsflaten & Strømsnes, 2013), and a rise in mean income could be expected to be associated with increased trust (Alesina & La Ferrara, 2002). In the context of South Africa, for example, race differences in trust of neighbors are reduced when personal and neighborhood income is controlled for (Posel & Hinks, 2012).…”