Income Inequality and Social Trust: The Case of Windhoek.

Abstract: Social trust appears to be beneficial for society, but varies greatly in level across countries. Income inequality has been proposed as a strong determinant of social trust, although often without sufficient micro foundation. Employing the notion of distributive justice, we derive three micro level mechanisms between income inequality and social trust and test them empirically. We call the mechanisms "inequality aversion," "winners versus losers" and "the belief that one cannot get rich by just means." Using cross-sectional data that we collect in Windhoek, Namibia, we see that the belief that one cannot get rich by just means appears to be associated with lower social trust, by how untrustworthy behavior is generated in society. However, as our data supports only one out of three micro level mechanisms, distributive justice theory alone appears not to suffice in uncovering the mechanisms between income inequality and social trust. The data also indicates that a theory on income inequality as determinant of social trust should include how trustworthy behavior is generated. Future microeconomic research can take this further by investigating income inequality and trustworthy behavior in relation to inequality of opportunity and corruption. Future macroeconomic research should employ measures that capture the skewness of an income distribution as a complement to the Gini index.