wl-7433-Social Capital and Income Inequality: An Empirical Analysis

Social capital is a developing research concept utilized in economics to represent pro-social behaviour. It is seen as a proxy variable to explain the social context within mainstream economic approaches. However, existing perspectives and research on this concept have primarily viewed it utilitarianly and have not fully integrated its significant characteristics as an economic asset. Considering these features, a different aspect of social capital emerges, highlighting its potential as a problem-solving mechanism for various economic issues. This paper examines the cause-and-effect relationship between income inequality and social capital and how they interact to exacerbate the situation. Through an analysis of data from the Indian Human Development Survey (IHDS), which includes variables related to formal and informal social capital, we discover that income inequality has a negative impact on the formation of formal social capital and significantly contributes to the development of informal social capital in an unequal environment in India. Further, the current study finds evidence of a lower level of social capital among low-income individuals. There is substantial inequality in income distribution that amplifies social capital inequality. Traditional income redistributive policies may prove ineffective when inequality becomes deeply ingrained in society.