Our main variables of interest are four measures of tolerance based on replies to three questions in the World Values Survey and European Values Study. They are: Tolerance
homosexuals, Tolerance race, Importance of teaching kids tolerance and Global tolerance (GT) index. The first dependent variable refers to the share of the population in each country and time period respectively that does not pick “homosexuals” in answer to the question “On this list of various groups of people. Could you please mention any that you would not like to have as neighbors?”. The second dependent variable refers to the share of the population that does not pick “people of a different race” in answer to the very same question. The third dependent variable is calculated using the share of the population answering “Important” to the quality “Tolerance” when being asked the question: “Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important?”. The final dependent variable corresponds to the GT index suggested by Das et al. (2008) and is constructed
calculating the average of the other three dependent variables.18 We use information on tolerance from the last non-missing value in the two latest versions of the World Values Survey and European Values Study, i.e., in 2005 or 2000.
Our main explanatory variables are six measures of the degree to which an economy is free from government involvement: the Economic Freedom Index (EFI) and its five constituent areas: Size of government (EFI1), Legal structure and security of property rights (EFI2), Access to sound money (EFI3), Freedom to trade internationally (EFI4) and Regulation of credit, labor and business (EFI5). These are described briefly in the preceding section and in detail in Table A1 in the Appendix.
In addition, we make use of a number of control variables that we consider potentially relevant: Real GDP per capita, Education, Young population share, Urban population share, Family values, Religious fractionalization, Ethnic fractionalization, Religion Catholic, Religion Muslim, Civil liberties, Political rights, Net income Gini and a set of geographical dummies. We later add Social trust (as motivated in section 2) and Central-bank independence as an instrumental variable. The variable on social trust comes from the World Values Survey (2012) and the European Values Study (2012) and corresponds to the share of the population in each country who answer that “most people can be trusted” to the question “In general, do you think most people can betrusted or can’t you be too careful?”.19 The measure of central-bank independence comes from Polillo and Guillén (2005) and corresponds to the index defined by Cukierman et al. (1992) that directly captures the extent to which the central bank is independent from the political power in a country. The index reflects four aspects: procedures concerning the governor of the central bank; the relationship between the government and the bank, and the location of authority over monetary policies; the objectives of the central bank; and the relationship between the government and the bank in terms of borrowing. The index is continuous (it ranges from zero to one) and increases with more independence.