From social capital to health--and back.

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.