Macroeconomic Imbalances: A Question of Trust?

Abstract

In this paper, we address the question of whether cross-country differences in civic capital, notably interpersonal trust, have contributed to the build-up of macroeconomic imbalances over the last three decades. We analyse the link between a stylised index of economic imbalances (a combination of the government budget balance, the inflation rate and the current account balance) and interpersonal trust, alongside other measures of civic and cultural capital, obtained from value survey data for 65 advanced and emerging countries. For the whole set of countries, we find robust empirical evidence for a negative and significant relationship between trust and macroeconomic imbalances which may therefore partly reflect underlying heterogeneity in civic capital. Within the euro area, differences in trust exist although they are not particularly large from an international perspective. With the nexus between trust and macroeonomic imbalances being equally robust we can attribute one fifth of the variation in intra-euro area imbalances to differences in interpersonal trust. Euro area membership and EU fiscal rules do not appear to have weakened the link between the two variables.

The Dual Pillars of Progress: Institutional and Cultural Dynamics in Economic Development

“…The methodology of this study is informed by previous research (Inglehart 1988;Tabellini 2010;Bützer et al 2013;Kostis et al 2018;Kafka et al 2020) and draws upon a diverse array of cultural values, including generalized trust, control over life, independence, honesty, competition affinity, work ethic, and respect 1 . These values were selected because they represent a comprehensive framework for assessing cultural influences on economic outcomes, as evidenced by their recurring significance in scholarly research.…”

Determining paths of innovation: The role of culture on the adoption on organic farming management

“…Little research focused on the effect of cultural proxies on innovation output, by employing static (Hofstede, 1980;Hofstede et al, 2005Hofstede et al, , 2010House et al, 2004) or dynamic measures of cultural change (Bützer et al, 2013;Kostis et al, 2018). To our best knowledge, there are no extant studies about the effect of cultural proxies on sector-specific innovation.…”

Economic effects of social capital

“…Guiso et al (2006) observe that thrift, measured by the World Values Survey in terms of a quality that parents might see as important to instill into their children, positively affects the national savings rate. Bützer et al (2013), who focus on macroeconomic imbalances include in their regressions also the aforementioned thrift measure, but do not find a significant effect. However, Falk et al (2018) point out that the measure might be first of all about childrearing than about something else.…”

“…The findings of Heinemann ( 2004) corroborate this argument, his results indicate that with an ageing population the likelihood of reforms decreases. Bützer et al (2013) find that generalized trust has a strong and negative effect on macroeconomic imbalances (measured in terms of the current account balance, fiscal balance, and inflation) which they explain in that generalized trust increases current generation's care for future generations, respectively helps to internalize future costs of action. Accordingly, Heinemann et al (2014) find that sovereign risk premia are smaller for countries with higher levels of generalized trust than for countries with lower generalized trust, which reflects in their view the ability of trusting societies to overcome societal coordination failures as unsustainable public debt.…”

“…Following a strand of this literature that classifies public debt as an intertemporal collective action problem (cf. Bützer et al, 2013), this study tries to ascertain whether specific factors that have been assumed to be pivotal from an intertemporal anglenamely generalized trust, age structure, intergenerational ties, and time preference have an effect on the occurrence of fiscal stress.…”