The Troika of Sociology, Political Science and Economics
- Elgar original reference
Edited by Gert Tingaard Svendsen and Gunnar Lind Haase Svendsen
Chapter 19: Economic Inequality
19 Economic inequality1 Henrik Jordahl 19.1 Introduction Inequality is a strong determinant of trust.2 People in unequal societies trust each other to a much smaller extent than people do in more equal communities. Several economic and social mechanisms could explain this relationship. Political factors could also be important; political arguments and decisions are often inﬂuenced by notions of distributive justice. People’s aversion to inequality has also been demonstrated in more systematic studies, for example by Fehr and Schmidt (1999). The development of income inequality and trust in the US illustrates the negative relationship. Since about 1975 there has been a signiﬁcant increase in income inequality (Piketty and Saez, 2003), and as observed by Putnam (2000) trust has declined during the same period. The coincidence of high trust and low income inequality in the Nordic countries provides an alternative illustration. There are good reasons to care about this. A major economic advantage of trust is that transaction costs – especially costs of policing and enforcement – are reduced when buyers and sellers can seal an agreement with a handshake. Additional beneﬁts enjoyed in trusting societies are demonstrated in other chapters in this volume. This chapter’s review of the literature on inequality and trust concentrates on economic inequality, which belongs to the category of inequality of outcome (or welfare) and excludes inequality of opportunity (which disregards inequalities that are due to diﬀerences in eﬀort). In the empirical parts of the chapter the deﬁnition of inequality is even narrower....
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