Social trust, institutional and political constraints on the executive and deregulation of markets

Leibrecht, M. and Pitlik, H. (2015) Social trust, institutional and political constraints on the executive and deregulation of markets. European Journal of Political Economy, 39. pp. 249-268. ISSN 0176-2680 doi: 10.1016/j.ejpoleco.2015.06.002

Abstract/Summary

Social trust is frequently claimed to be conducive for economic reforms. Likewise, the scope of policy liberalization is influenced by the political power structure as manifested in institutional and political constraints on the executive (IPCE). However, social trust and IPCE are possibly intertwined in their effects on economic liberalization. This paper empirically explores the relationship between social trust, IPCE and the scope of economic deregulation as measured by the first difference in the regulation subindex of the Economic Freedom of the World index. The results provide evidence in favor of a positive association of social trust with deregulation and of a negative association between institutional or partisan veto-points and deregulation. Yet, according to our analysis IPCE are an obstacle for economic deregulation only in relatively low trusting environments and social trust unfolds a particular strength as driver of deregulation with increasing levels of IPCE.