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. 2021 May 19;19(4):801–824. doi: 10.1007/s10888-021-09490-x

Inequality, perception biases and trust

Markus Knell 1,✉, Helmut Stix 1
PMCID: PMC8131493  PMID: 34025330

Abstract

This paper studies the effect of income (wealth) inequality on interpersonal trust. We propose a theoretical framework that links trust, trustworthiness and inequality. The key feature is that agents do not necessarily observe the entire income distribution but base their assessment on reference groups (i.e. they might hold a biased view of reality). In this framework the negative impact of inequality on interpersonal trust is related to the individual-specific perception of inequality. This has important implications for the empirical analyses since researchers typically do not observe perceptions but only objective measures of inequality (e.g. the Gini coefficient). We show that the use of the latter is appropriate only under restrictive assumptions and in general will result in an underestimation of the true effect. An unbiased estimate of the effect of inequality on trust can be obtained with a measure of individual-specific perceptions of inequality. Survey data support our framework. Perceptions of higher inequality exert a strong negative effect on trust.

Supplementary Information

The online version contains supplementary material available at (10.1007/s10888-021-09490-x).

Keywords: Trust, Inequality, Perception

Electronic supplementary material

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(PDF 857 KB) (857.2KB, pdf)

Footnotes

The views expressed in this paper do not necessarily reflect those of the Oesterreichische Nationalbank. We thank Mathias Moser and Matthias Schnetzer for providing us with geographical data on income inequality in Austria from the TaxSim Project (Research Institute Economics of Inequality, Vienna University of Economics and Business; see Moser and Schnetzer (2017)). We are also grateful to three anonymous referees who have provided highly valuable comments and suggestions.

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Contributor Information

Markus Knell, Email: Markus.Knell@oenb.at.

Helmut Stix, Email: Helmut.Stix@oenb.at.

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