Working Paper: CEPR ID: DP10354
Authors: Maxim Ananyev; Sergei Guriev
Abstract: This paper draws on a natural experiment to identify the relationship between income and trust. We use a unique panel dataset on Russia where GDP experienced an 8 percent drop in 2009. The effect of the crisis had been very uneven among Russian regions because of their differences in industrial structure inherited from the Soviet times. We find that the regions that specialize in producing capital goods, as well as those depending on oil and gas, had a more substantial income decline during the crisis. The variation in the industrial structure allows creating an instrument for the change in income. After instrumenting average regional income, we find that the effect of income on generalized social trust (the share of respondents saying that most people can be trusted) is statistically and economically significant. Controlling for conventional determinants of trust, we show that 10 percent decrease in income is associated with 5 percentage point decrease in trust. Given that the average level of trust in Russia is 25%, this magnitude is substantial. We also find that post-crisis economic recovery did not restore pre-crisis trust level. Trust recovered only in those regions where the 2009 decline in trust was small. In the regions with the large decline in trust during the crisis, trust in 2014 was still 10 percentage points below its pre-crisis level.
Keywords: Crisis; Social Capital; Trust
JEL Codes: Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in trust (Z13) | long-lasting effects of economic shocks (F69) |
| 10% decrease in income (E25) | 5 percentage point decrease in trust (Z13) |
| historical industrial structure of Russian regions (N93) | changes in income (E25) |
| 10% decrease in income (E25) | decline in trust (Z13) |