The Market-Promoting and Market-Preserving Role of Social Trust in Reforms of Policies and Institutions

Forthcoming in Southern Economic Journal

50 Pages Posted: 4 Feb 2017 Last revised: 10 Feb 2017

See all articles by Niclas Berggren

Niclas Berggren

Research Institute of Industrial Economics (IFN); University of Economics, Prague - Faculty of Economics and Public Administration

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies; Institute for Corruption Studies

Date Written: February 2, 2017

Abstract

Social trust has been identified as a catalyst for reforms. We take the literature further in two ways. First, we make a fine-grained analysis of mechanisms through which social trust enables liberalizing reforms – by strengthening the ability to overcome obstacles in the political process (stemming from ideology, ideological fractionalization, coalition government, minority government and legislature-seat instability). Second, we define reforms as distinct changes in the quality of the legal institutions and in the scope of regulation and separate reforms that increase economic freedom in these two areas from reforms that decrease it. We study separately how social trust, interacted with the different types of political hindrances, affects the probability of reforms. We find a dual role of social trust in the political process – facilitating liberalizing reforms and making de-liberalizing ones more difficult. This result suggests that trust does not make agreement on any reform more probable – the content of the reform matters. Other research shows that trust is associated with a positive view of market actors, which indicates that only reforms that strengthen the market economy are more easily agreed upon in the presence of trust.

Keywords: Reforms, Liberalization, Social Trust, Ideology, Fractionalization, Coalition Government

JEL Classification: H11, P11, P48, Z13

Suggested Citation

Berggren, Niclas and Bjørnskov, Christian, The Market-Promoting and Market-Preserving Role of Social Trust in Reforms of Policies and Institutions (February 2, 2017). Forthcoming in Southern Economic Journal, Available at SSRN: https://ssrn.com/abstract=2910271

Niclas Berggren (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/nb

University of Economics, Prague - Faculty of Economics and Public Administration ( email )

nám. W. Churchilla 4
Praha, 130 67
Czech Republic

Christian Bjørnskov

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

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