Rising political polarization and public distrust are believed to erode democratic norms and institutions, and known to be correlated with worrisome social, economic, and political conditions. However, the causes of political polarization are not well understood, and subject to competing hypotheses. In this paper, we test empirical support for a hypothesis which connects increasing polarization and distrust to micro level factors. Under this hypothesis, economic insecurity is expected to increase individual risk aversion leading to a decrease in out-group interactions and therefore rising polarization within a society.

We empirically test the predictions of this model by using indicators related to economic insecurity, trust, and affective polarization across both country and individual level. We create a panel dataset of country level indicators of income inequality, trust, and polarization and run fixed effects models. In order to link this to individual behaviour, we further employ multilevel models under a range of specifications. Finally, we exploit an exogenous variation due to exposure to a Chinese import shock in order to examine if there could be a causal relationship between economic insecurity and distrust.

We find that economic insecurity is associated with both growth of affective polarization and public distrust. These results hold true across alternate indicators of both economic insecurity and affective polarization. Our results support the suggestion of a relationship between trust and a perceived capacity for risk taking, and support the hypothesis that individual economic security can explain not only identity politics but also macro level political polarisation.