Economic development, inequality and generalized trust

Individuals turn towards identifiable in-groups to reduce uncertainty in social interaction. By reducing existential uncertainty, economic development undermines the rationality of in-group bias and, as such, facilitates the emergence of generalized trust. Conversely, income inequality may undermine generalized trust because it makes social interaction less predictable. In view of this, we argue that the positive impact of economic development on generalized trust is likely to be undermined by income inequality. Our empirical evidence, based on a panel of up to 89 countries, and controlling for the influence of potentially confounding covariates and the real possibility that generalized trust can impact on both development and inequality, provides robust support for this assertion. Thus, if generalized trust is to be sustained, attention should be given to both the growth and distribution of income.