Trust, Perceptions of Corruption, and Demand for Regulation: Evidence from Post-Socialist Countries
Valentina P. Dimitrova-Grajzl
Virginia Military Institute
Washington and Lee University - Department of Economics; CESifo
A. Joseph Guse
Washington and Lee University - Williams School of Commerce, Economics, and Politics
August 22, 2011
While the tradeoff between market failure and government failure has been explored both theoretically and in practical policy design, the question of whether this trade-off appears in the calculus of citizens' demands for government regulation remains underexplored. We first clarify the channels through which concerns for market failure, as proxied by trust in market participants, and concerns for government failure, as proxied by perceptions of corruption, jointly affect individuals' demand for government regulation. We then investigate these effects empirically, using data from post-socialist countries. Our analysis confirms the previously established result that trust has a negative effect on demand for regulation. Perceived corruption, however, affects demand for regulation primarily via a negative interaction effect with trust. Our findings suggests that, in post-socialist countries, both concerns for market failure and concerns for government failure are indeed in citizens' minds and that concerns about government failure are at least as important as the desire to punish the 'unpleasant capitalists' hypothesized by Di Tella and MacCulloch (2009).
Number of Pages in PDF File: 40
Keywords: Demand for regulation, trust, perceptions of corruption, post-socialist countries
JEL Classification: K20, L51, P30, Z13
Date posted: May 23, 2011 ; Last revised: October 4, 2011
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