Inequality and Trust Dynamics

Abstract

This chapter takes a close look at the interconnection between social trust and income inequality across countries. It argues that trust is both a consequence and a determinant of income equality. Small income differences create trust and trust feeds back on small income differences through an expansion of the welfare state. Together the two mechanisms, and the feedback process that they give rise to, explain how differences in history, institutions, or sudden adjustments can be enlarged over the long run—and give rise to a situation where countries differ significantly with respect to social trust and income inequality.