Trust, Growth and Political Stability

Abstract:
Based on real-world observations, we postulate that economic recessions can result in very different political outcomes across countries according to the underlying level of social trust: citizens in high trust societies are less likely to attribute blame for poor macroeconomic performance to their politicians than those in low trust societies. We empirically test this view by examining the heterogeneous effect of recessions on political turnover across countries. Estimates show that economic downturns are less likely to cause turnover in countries with higher levels of trust. The results are driven by countries which are stable democracies, open economies, and economies with no recent history of recession. The results are consistent with our hypothesis.