Economic Crisis and Morale

The functioning of welfare states and tax systems is fostered by social norms to obey the rules of the system. Morale can change and react to new incentives. In particular, a deep economic crisis with increasing unemployment and reduced prospects for market income may have a norm eroding effect. This study explores the link between economic crisis and morale. Our theoretical reasoning is based on an economic approach to the evolution of norms, according to which norms are influenced by self-interest. A distinction is made between two dimensions of citizens’ morale: benefit and tax morale. Our econometric evidence based on data from the World Value Survey suggests that a sharp hike in unemployment reduces the morale standards along both dimensions. The crisis impact on benefit morale is conditional on the existence of generous benefit schemes.