Trust in public institutions

The effectiveness of public institutions depends on the trust that citizens and businesses bestow upon them. Such trust is difficult to build and easy to lose. The prevailing theory of trust in public institutions starts with Putnam (1993), who finds that northern Italy’s history of community, guilds, clubs, and choral societies led to greater civic involvement and more trust in government, which in turn resulted in greater economic prosperity. Meanwhile, the agrarian society of Southern Italy was less prosperous economically and democratically because of less trust among citizens and in public institutions. Citizen engagement makes people extend their trust from their familiar circle to public institutions as well.  While there is a long history of citizen engagement at the local level in many developing economies, the dual structure of institutions – formal and customary – has made it difficult to replicate Putnam’s results in northern Italy to these economies.

Using global data from the Wellcome Global Monitor and the Worldwide Governance Indicators, we show that trust is associated with higher degrees of government effectiveness, even when income per capita is considered (see Figure 1). This association can be self-fulling: in countries where citizens and the private sector trust public institutions they use their services more often, thus creating demand for better services. Politicians respond to this demand by investing more resources in public institutions, including in the physical and human capital they use, further raising the productivity of these institutions by reducing transaction costs.

Figure 1: Trust in Public Institutions Is Associated with Higher Effectiveness

Note: Trust in government institutions is taken from the Welcome Global Monitor for the year 2020, while government effectiveness is taken from the Worldwide Governance Indicators for the year 2021. The sample comprises 107 countries, for which data are available in the Welcome Global Monitor.

But what affects trust in public institutions? Research suggests three prevailing factors. First, citizens extend trust towards public institutions when they produce beneficial outcomes for the respective community. This is particularly the case when public goods, services or works – such as roads, hospitals, schools, and other social infrastructure – are usable by many citizens or the private sector. For these outputs to be produced efficiently, public procurement must function well.

Second, citizens tend to trust politicians and bureaucrats when there is no suspicion of misuse of public money. The lack of trust fed by corruption undermines government efforts to fight corruption and leads the public to routinely dismiss government promises to deliver goods and services.  Recent studies on Mexico and Spain document this link.

Third, the individual perception of income inequality is an important determinant of trust. Generally, societies with lower levels of income inequality have higher levels of political trust, likely because higher levels of income inequality are associated with higher levels of economic insecurity.

We demonstrate these hypotheses in cross-country data. The analysis uses data for the quality of publicly-procured road projects , while corruption perception indices are retrieved from Transparency International (see Figure 2). The data is for 2019, so that we can plausibly argue that citizens and the private sector observe these levels of quality and corruption, form their trust in public institutions, and these institutions in turn display effectiveness.

Figure 2: Quality of Roads and Perceptions of Corruption Affect Trust

Note: Quality of roads is taken from the Bosio et al (2022), while data on corruption perceptions are taken from Transparency International (2020). Trust in government is taken from the Welcome Global Survey for the year 2020. The sample comprises 107 countries, for which data are available in the Welcome Global Monitor.

The analysis shows that trust in public institutions is positively correlated with the measure of road quality (used as a proxy of the government’s ability to deliver qualitative services) and the perceived level of corruption. When the government produces high-quality public services and is perceived as free from corruption, citizens tend to have more trust in it. 

Beyond qualitative services and the prosecution of corruption, an overarching principle – posited by Putnam – is of highest relevance. Reformers should devise ways to engage citizens and the private sector in the process of creating or reorganizing public institutions. Higher levels of citizen engagement are the long, but proven, path to increase trust as they create a virtuous cycle from public service provision to citizen trust, to better tax collection, to increased public resources for even better services.