Where Inequality May Imperil Democracy Is Where Politics Leaves the Market to Itself: Rising Economic Inequality, Citizens’ Trust in Democratic Governance, and the Role of the Welfare State as a Stabilizer of Liberal Democracy

Abstract
Set against the background of rising inequality in affluent countries, the paper scrutinizes the role of economic inequality for citizens’ trust in the institutions of democratic governance. In view of conflicting evidence from prior research, I compile a harmonized database of cross-nationally comparable survey data that spans a four-decade observation window to assess the effects of inequality on citizens’ level of political trust in 32 Western democracies. Based on estimates from hierarchical group fixed-effects regression models, the paper contributes the following key observations: first, citizens consistently express lower levels of trust under conditions of high economic inequality. This finding is robust to any unmeasured time-invariant confounders at the levels of countries and SES groups as well as to alternative assumptions about unobserved concomitant changes in the political, social, or economic realm that may potentially be argued to confound the relationship of primary interest. Second, rising economic inequality is specifically corrosive to citizens’ trust in the institutions of democratic governance. Rising economic inequality most visibly lowers citizens’ trust in parliament and government, has moderate effects for trust in political parties and in the legal system, but does not affect citizens’ trust in the police. Third, adverse impacts of rising inequality on democratic trust are not a universally shared feature of Western democracies, but are sharply reduced in generous welfare regimes that visibly intervene in the income distribution. And fourth, when seeking to differentiate between rising inequality that is due to a labor market crisis and rising inequality that is a consequence of secular technological or institutional change, it turns out that citizens respond in quite similar ways to rising unemployment across Western countries, and that effective welfare state intervention is critical for determining citizens’ responses to secular increases in economic inequality.