We assess the causal relationship between health and social capital, measured by generalized trust, both at the individual and the community level. The paper contributes to the literature in two ways: it tackles the problems of endogeneity and reverse causation between social capital and health by estimating a simultaneous equation model, and it explicitly accounts for mis-reporting in self-reported trust.
The inter-relationship is tested using data from the first four waves of the European Social Survey for 25 European countries, supplemented by regional data from Eurostat. Our estimates show that a causal and positive relationship between self-perceived health and social capital does exist and that it acts in both directions. In addition, the magnitude of the structural coefficients suggests that individual social capital is a strong determinant of health, whereas community level social capital plays a considerably smaller role in determining health. Copyright © 2013 John Wiley & Sons, Ltd.