(Historical) Income inequality and social capital.

Abstract

This master thesis examines whether – and, if so, how – income inequality has an impact on social capital looking from a historical and present perspective. After a brief literature review and a detailed theoretical discussion, my empirical analysis uses municipality-level data and covers all 428 municipalities currently existing in Norway. It covers the period from 1993 to 2015, but also incorporates historical income inequality data from 1865. My main measure for social capital is financial donations to the annual TV-aksjonen. I implemented several empirical models, ranging from pooled OLS regressions and fixed effects panel regressions on the complete set of data, to IV regression models on pooled and municipality-averaged datasets. The latter approach was particularly important since there was no over-time variation in the instrument available to deal with potential endogeneity concerns in the relation between inequality and social capital. My main conclusion from using the sample of 428 municipalities is that an increase in income inequality over time within a given municipality has little to no effect/relation on how much people donate (Social Capital).