Two Essays on Financial Crises and Values

Abstract

This thesis consists of two essays that investigate the effect of financial crises on values and attitudes in Europe. In the first essay, I analyze the relationship between the Great Recession and trust. Many individuals, from pundits to the Secretary of the UN General Assembly, have asserted that the world is experiencing a crisis of trust and conjecture a primary cause is the 2008 Global Financial Crisis. Using the European Social Survey, and data across fifteen countries from 2002 to 2016, I analyze the response of trust to financial crisis with an emphasis on how it varied across countries. First, I find that the purported “crisis of trust” is exaggerated. Second, I conclude that changes in the macro-economic environment have a non-linear effect on trust; small changes in GDP effect trust levels very little and it takes a major recession to have a significant effect on trust. Third, I find that the effect of financial crisis on rates of political trust differs across countries. Likewise, the impacts of other determinants of trust exhibit considerable cross-country variation. Fourth, I find that demographic variables might help explain peculiarities in the relationship between changes in the macro-economy and levels of trust. In the second essay, I evaluate the link between financial crises and prosociality. Despite a wealth of economics and psychology literature on the effect of formative experiences on preferences, almost all analyses of the effects of financial crises on prosociality focus on the effect the crisis has on prosocial behavior while the crisis is on-going. Using the European Social Survey, I analyze the effect of financial crises during an individual’s formative years, 18 to 25, on the probability they exhibit prosocial attitudes as adults. I find that experiencing a financial crisis during formative years increases one’s probability of having prosocial attitudes persists throughout life and does not decrease with age. The effect, however, does differ by education and income. It is more pronounced for individuals who achieve higher levels of education and who are higher earners later in life. The two essays cover distinct but related issues. Both of them rely on the European Social Survey (ESS). In order to avoid redundancy, the ESS is described only once, in the first essay, which explains, in part, its greater length.