Economic effects of social capital

Abstract

This thesis investigates economic effects of social capital in three separate studies. The first two studies deal with the effect of social capital on two factors that pave the way for fiscal stress, informality and fiscal cyclicality. While the shadow economy as a form of tax evasion deteriorates public revenues, a cyclical behavior of fiscal policy often goes along with an extension of lasting financial obligations in economic good times which makes public budgets vulnerable in following downturns. The third study focusses on the occurrence of fiscal stress which lends itself as research object for the analysis of the overall effect of social capital in this context. The main results indicate that there is a causal and negative relationship between: 1.) Institutional trust and the size of the shadow economy, whereby the effect of the former seems conditional on generalized trust; 2.) Social capital (as a whole) and fiscal procyclicality, which partially runs through the adoption of fiscal rules and the extent of corruption; 3.) Generalized trust and the occurrence of fiscal stress, though the link between time preference and fiscal stress appears equally pronounced.