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Trust and the welfare state: The twin-peaked curve

Algan, Y., Cahuc, P. & Sangnier, M. (2014) “Trust and the welfare state: The twin-peaked curve“, VoxEU Organisation, 17 Ιουλίου.

 

It is commonly argued that the persistence of large welfare states in Scandinavian countries is due to the trustworthiness of their citizens. This column shows that the relationship between trust and the size of the welfare state is twin peaked. Untrustworthy individuals support generous welfare states because they expect to benefit without bearing the costs, whereas civic-minded individuals only support generous welfare states when surrounded by people they trust.

It is commonly argued that the persistence of large welfare states in Scandinavian countries is explained by the trustworthiness of their citizens. Those large welfare states presumably rely on conditional cooperation. Trustworthy, or ‘civic’ individuals consent to pay high rates of tax only because they are convinced that their compatriots are paying their taxes too, and not misusing social benefits (Rothstein and Uslaner 2005).

Actually, a glance at the data shows that this explanation can only be one part of a much broader story for the OECD countries. Figure 1 shows that the observed cross-country relationship between trust and the size of welfare states – measured by the share of social expenditure in GDP – is not monotonic, contrary to the traditional claim, but twin peaked. Although Austria, Belgium, France, Germany, and Italy display limited trust, their welfare states are as large as those of Scandinavian countries.

 

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