Working Paper: NBER ID: w14648
Authors: Philippe Aghion; Yann Algan; Pierre Cahuc; Andrei Shleifer
Abstract: In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.
Keywords: government regulation; social capital; distrust; entrepreneurship; corruption
JEL Codes: K2; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| distrust (D80) | regulation (L51) |
| regulation (L51) | social capital (Z13) |
| distrust (D80) | social capital (Z13) |
| distrust (D80) | demand for regulation (G18) |
| demand for regulation (G18) | regulation (L51) |