DP10749 Does Economic Prosperity Breed Trust?

• Mark Gradstein Alberto Chong
2 Aug 2015

We explore whether national economic prosperity enhances mutual generalized trust. This is done using panel data of multiple waves of the World Values Surveys, whereby national income levels are instrumented for using exogenous oil price shocks. We find significant and substantial effects of national income on the level of trust in the economy. In particular, a one percent increase in national income tends to cause an average increase of one percentage point (or more) in the likelihood that a person becomes trustful. One possible rationalization for this, exhibited in a simple model, is that perceived prosperity signals that many people are trustworthy.