Published as part of the ECB Economic Bulletin, Issue 3/2022.
1 Introduction
In most advanced economies, income and wealth inequality have increased since the early 1980s, although the available data point to diverse national trajectories. Wealth concentration and income inequality have been shown to be rising in continental Europe, but substantially less so than, for example, in the United States and the United Kingdom.[1] The coronavirus (COVID-19) pandemic is likely to further amplify economic inequalities. Income inequality could increase as a result of higher unemployment and loss of income among younger workers, women, those in lower income and lower education groups and temporary workers.[2] Moreover, rising asset prices, such as those of stocks and real estate, together with changes in consumption and savings behaviour across different parts of the wealth distribution during the pandemic, may contribute to greater wealth inequality.[3]
Citizens have expressed concerns about economic inequalities in the context of the ECB’s Strategy Review.[4] Empirically, studies have shown that monetary policy may only have a limited impact on economic inequalities and that, overall, the easing of monetary policy appears to have somewhat dampened economic inequality in the euro area in recent years.[5] At the same time, it has been shown that inequality could play a role in the transmission of monetary policy, highlighting the need to improve understanding of the ways in which inequality can have an impact on the fulfilment of the ECB’s mandate.
One aspect that has received less attention is how a perceived increase in inequality could affect public trust in central banks, and how this could affect the fulfilment of central banks’ mandates. In the European context, rising economic inequalities have been found to depress public trust in the EU and its institutions, both directly and indirectly through the negative impact of inequality on trust in national institutions.[6] This may have an impact on the ECB, as public trust is of relevance both for the anchoring of inflation expectations, which increases the effectiveness of monetary policy,[7] and to shield it from political pressures that could undermine its independence.
This article explores the relationship between economic inequalities and public trust in the ECB and other European institutions. Drawing on data from the ECB’s new Consumer Expectations Survey and the Standard Eurobarometer, it analyses the relationship between different forms of economic inequality, perceptions of inequality and public trust in the ECB and other EU institutions in the euro area over the period 1999-2020 and in the context of the COVID-19 crisis. Section 2 discusses the relevance of economic inequality for institutional trust in general and for trust in the ECB in particular. Section 3 examines different dimensions and measurements of economic inequality and their evolution in the euro area. Se