Uncovering the impact of intergenerational income mobility on interpersonal trust

AbstractAlluding to theories about relative economic status and behavior, this paper studies if relative income mobility, or the intergenerational change in income positions, affects interpersonal trust. Empirically, the question is brought down to an application with US General Social Survey data. For the identification of a causal relationship, I use a structural approach and estimate a recursive bivariate probit that controls for selection on unobservables. Results suggest that trust increases if children have achieved an upward income movement away from their parents’ income position, and it decreases with the experience of downward income mobility. Policy implications are also discussed. JEL codes: H8; O4; Z00