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Article

Factors of Subjective Household Economic Well-being in Transition Countries: Friends or Institutions in Need?

The purpose of this paper is to analyze the relationship between social capital and subjective ranking of household economic well-being in transition countries. The current study tests whether the performance of formal institutions moderates this link.
The analyses are based on the data from the second wave of the Life in Transition Survey. The measures “generosity of welfare policy (social safety nets)” and “ability of formal institutions to control inflation” were provided by the Bertelsmann Transformation Index Project. The study uses four measures of social capital: trust in family, trust in friends and acquaintances, trust in most people, the number of support sources. To test the hypotheses, the study employs mixed-effects regression models.
The study indicates a significant positive effect of social capital on subjective household well-being. Formal institutions do not have a significant effect on subjective ranking of household well-being. The evidence on institutions as moderators rejects the substitution effect between formal institutions and social capital. Higher generosity of welfare policy institutions and higher ability of formal institutions to control inflation strengthen the positive effect of particular trust (trust in family and trust in friends and acquaintances) on subjective ranking on the ladder of social standing (subjective ranking of household well-being), which is in line with the “crowding in” theory.
The paper adds on the limited research on transition countries. The paper contributes to the discussion on “crowding in” and “crowding out” effects of formal institutions on social capital.