The virtuous loop of quality of government (QoG) and institutional trust in OECD countries, 2006-2021 and culture

We explore empirically the relationship between trust in government and the quality of government (QoG) with a dynamic panel model for the period 2006-2021 in the 38 OECD countries, with reverse and lag specifications while incorporating a range of social, political, and economic factors as explanatory variables. The results show a clear positive mutually reinforcing dynamic between QoG and trust in government when the social, political and economic factors are included. Trust in government with a three-year lag is positively related to QoG. Foreign-born population with a three-year lag is negatively associated with QoG. The other way around: trust in government is affected by the QoG in the same year. Economic decline reduces trust in government.

QoG and trust appear to be embedded in culture (measured with the Hofstede indices). Power distance is negatively related to both QoG and institutional trust. The association between individualism and QoG is positive, while long-term orientation and indulgence positively impact trust.

JEL Classification: D31, D73, D78, E61, H5, H83, I38, O01, Z13, Z18, Z19

Keywords: Quality of Government, Institutions, Trust, Culture, Diversity, Inequality, Economic stability