The Impact of Trust on Reforms

In a constantly changing economic environment a country's ability to undertake institutional reforms is crucial to maintain economic growth and to promote the welfare of its citizens. A wide range of determinants for institutional reforms have been identified. However, the impact of trust on reforms has so far never been addressed. We provide theoretical arguments why trust should influence institutional changes and test the relationship empirically. We find a significant positive relation between trust and reforms with regard to government size, the legal system, and deregulation of private businesses and the labor market. The results in other policy fields are ambiguous.