Trust, Growth and Political Stabili ty
Abstract:
Based on re
al-world observations, we postulate that economic recessions can result in
very different political outcomes across countries according to the underly
ing 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 examin
ing the heterogeneous effect of recessions on political turnover across cou
ntries. Estimates show that economic downturns are less likely to cause tur
nover in countries with higher levels of trust. The results are driven by c
ountries which are stable democracies, open economies, and economies with n
o recent history of recession. The results are consistent with our hypothes
is.