Andrea Tesei ,
Queen Mary University of London
January 26, 2015
Existing studies of trust formation in U.S. metropolitan areas have found that trust is lower when there is more income inequality and greater racial fragmentation. I add to this literature by examining the role of income inequality between racial groups (racial income inequality). I ﬁnd that greater racial income inequality reduces trust. Also, racial fragmentation is no longer a signiﬁcant determinant of trust once racial income inequality is accounted for. I also show that racial income inequality has a more detrimental effect in more racially fragmented communities and that trust falls more in minority groups when racial income inequality increases. The results hold under both least squares and instrumental variable estimation.
J.E.L classification codes: D31, Z10, J15
Keywords:Trust, Racial income inequality, U.S.