Trust in Spanish Governments: Antecedents and Consequences
Abstract
We use the Fiscal Observatory Survey of the University of Murcia (2007) to examine the antecedents of trust
in the Spanish government (at city, regional and state levels). We find that the main drivers of trust are
individuals’ perception of the government's performance and the socio-economic environment in which they
live. Regarding the consequences, we test a variant of the rule compliance hypothesis: the higher the trust in
the government, the higher the citizens’ fiscal awareness, meaning individuals are more conscious of their
fiscal obligations and more intransigent on fiscal fraud. Our results suggest that trust levels shape fiscal
awareness, producing virtuous or vicious loops.
Clasificación Código JEL: H2, H3, H7, K34
Key Words: Trust; Social Capital; Tax Morale; Fiscal Awareness; Government's Performance; Fiscal Fraud
Alarcón García, Gloria
Department of Public Finance and Public Sector, University of Murcia, Spain
Facultad de Economía y Empresa, Universidad de Murcia, Campus de Espinardo, 30100 Murcia
[email protected]
Ayala Gaytán, Edgardo
Monterrey Institute of Technology, School of Business, Social Sciences and Humanities Department of
Economics
C/ Eugenio Garza Sada 2501
64849 Monterrey, Nuevo León, México
[email protected]
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1. Introduction
There is a large body of literature showing that trust and social capital, understood as trust and social norms
and codes, are critical ingredients in the economic welfare recipe. Some consequences of trust are, for
instance, high participation rates in politics and, especially, in elections (Beugelsdijk & Van Schaik, 2001);
enlargement of enterprises (Fukuyama, 1995; La Porta et al., 1997); and a general enhancement of the
economic performance (Dasgupta, 2000; Gambetta, 2000; Durlauf & Fafchamps, 2004; Keefer & Knack,
1997).
Lately, a more specific line of research has suggested that citizens' trust in their governments improves
government's performance (Knack & Zack, 2003; King et al., 2002). This is presumably due to the fact that
trust is associated with a higher participation of citizens and thereby with a higher accountability of government
officers. Trust is also linked to a decrease in polarization, more likelihood of achieving agreements, and more
social-oriented preferences of individuals (Boix & Posner, 1998).
In this paper, we examine the antecedents or determinants of trust in all three Spanish government systems
(city, autonomous community and state) by conducting the Fiscal Observatory Survey of the University of
Murcia (2007). Regarding the antecedents, we test the hypothesis that assumes that the main drivers of trust
are both citizens’ perception of government's performance, and the objective performance of the economic
and social context in which they live. As regards the consequences, we test the Boix and Posner (1998) rule
compliance hypothesis, which proposes that the higher the trust, the likelier are the agents to obey the rules. In
this study, we deal with fiscal rules compliance by using the construct of fiscal awareness, which encompasses
fiscal ethics and fiscal morale. It also includes the reflective knowledge of individuals and their assessment of
public revenues and expenditure considering their correct compliance with the tax system (Alarcón, Martínez &
Quiñones, 2007). Following this line, our work extends previous studies concerning the Spanish case, mainly
by Alm and Gómez (2008) and Martinez-Vazquez and Torgler (2009), since in this paper their hypotheses are
tested by means of a new survey exclusively designed to tackle fiscal awareness among Spaniards using the
same data that as Mª Dolores et al (2010). Besides, a wider concept of rule compliance is applied, and the
idiosyncratic and context drivers of trust in governments are carefully tested in the Spanish context.
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2. Why does trust matter for governments?
The constructs of trust and social capital are designed to measure the degree of connection among the agents
of a society, since cohesion is a crucial element for economic performance (Putnam et al., 1993; Putnam,
2000). In a figured way, social capital is the intangible glue that sticks social relationships, and trust is one of
the essential components of this social adhesive. Trust is an intangible asset that allows the voluntary
disposition among parties to make interdependent actions in an uncertain environment. Mutual trust increases
the likelihood of voluntary exchange, the frequency and velocity of the exchanges, the reciprocity, and the
desired behavior of the individuals regarding their rights and obligations (Alesina & La Ferrara, 2002;
Dasgupta, 2002; Fukuyama, 1995; La Porta et al., 1997).
Arrow (1972: 357) states, “virtually every commercial transaction has within itself an element of trust, certainly
any transaction conducted over a period of time. It can be plausibly argued that much of the economic
backward-ness in the world can be explained by the lack of mutual confi-dence”. Alesina and La Ferrara
(2002: 207-208) suggest, “when the individuals trust each other, the transaction costs of economic activities
diminish; the large organizations and governments are more efficient; and the financial sector develops in a
faster way. All these factors contribute to a high level of trust that promotes economic success”. In addition,
trust is a less expensive substitute of the institutional entities required to enforce complete contracts among
the agents (Dasgupta, 2000; Gambetta, 2000; Durlauf & Fafchamps, 2004).
There is a large body of empirical evidence showing a robust positive association between trust and economic
development. For instance, Keefer y Knack (1997) found a positive correlation between trust and economic
growth, and trust and the investment rate in a cross section of countries by using the World Value Survey
(WVS). On the other hand, Knack and Zak (2002) and King (2003) corroborated these relations at a regional
level in the United States. Moreover, La Porta (1997) found that trust is positively associated with economic
performance, the efficiency of large organizations and civic participation. At a microeconomic level, trust
seems to shape the investment in online communications individuals do, facilitating the faster adoption of
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information technology progress (Pénard & Poussing 2010). Evidence suggests reciprocal causal relation
between intensively using internet and social capital (Kraut et al. 2002).
Trust is especially important in government's performance. La Porta (1997) proved that a high level of trust is
associated with high indexes of government efficiency and public servants' honesty. In a more detailed work,
Knack (2000) found a significantly positive relation between citizens’ trust in governments and government's
performance. In that study, the performance was measured using administrative audits to main government
function areas, such as financial management, human resources, and information technologies, among others.
Therefore, performance is not measured by taking into account perceptions but objective information.
Moreover, Knack (2000) found that the relation is robust in the different ways for measuring performance as,
for instance, the sources of data of Government Performance Project and The Index of Government
Reinvention. Additionally, the relation remains the same, even after considering several control variables and
the likely endogeneity that could take place if trust and government's performance simultaneously occur.
Why should we expect trust to improve public performance? Putnam (1993) and Knack (2000) propose three
mechanisms that explain this relation. They argued that trust encourages civic participation and this makes
public officers more accountable, which Boix and Posner (1998) call the rational voters and the competitive
elites effect. This is because, in countries with high levels of trust, citizens participate more often and spend
more time monitoring their authorities. In addition, trust increases the likelihood to reach agreements by
reducing polarization, as well as encouraging government innovation.
Boix and Posner (1998) add two other micro-foundations to the link between trust and public performance: rule
compliance and civic virtue. Trust might induce rule compliance, because when individuals rely on their fellow
citizens, they comply with their public obligations (that is, they pay their taxes and obey the rules). In other
words, they are more encouraged to comply with their own obligations. Additionally, as they expect
governments to use public funds in a suitable way, they would be pleased to contribute to finance the public
funds that governments produce and provide. The civic virtue argument proposes that high levels of trust might
contribute to a shift in the citizens' preferences from a personal interest (what is good for me?) to a more
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community-oriented one (what can we do for our neighborhood?). This shift would increase cooperation
between citizens and governments.
3. Determinants of trust
The measure of the construct is a critical issue in the study of the antecedents of trust. It is a complicated step
because trust is an intangible asset. The approach taken by La Porta et al. (1997), Alesina and La Ferrara
(2002), and Keefer and Knack (1997) consists in using self-reported trust items from surveys, mainly the World
Value Survey (WVS) and the General Social Service (GSS) in the United States. Glaeser et al. (2000) took
and experimental approach, while Fehr et al. (2003), and Fehr and Kosfeld (2005) employed both experiments
and surveys. Moreover, a new line of research has been considering the information on hormones and
neuronal activity. In this regard, a pioneer study by Zak (2005) dealt with trust through the study of oxytocin
levels, a hormone that individuals segregate when they feel empathy for others. On the other hand, Krueger et
al. (2007) attempted to track the level of trust by gathering information from brain scanners.
The large body of evidence on trust determinants suggests that most deciding factors are divided into three
sets of variables: the individuals' socio-economic profiles, the context in which they live, and their perceptions
on the performance of the main institutions of society. Among the first set of variables, education seems to be
the most important driver of trust. In this regard, the studies by Helliwell and Putnam (1999) and Knack and
Zak (2003) conclude that the higher the individuals’ level of education, the higher is the trust. Thus, education
and human capital promote trust, which directly enhances individuals’ trust in their fellow citizens, and
indirectly improves the quality of institutions in charge of enforcing the fulfillment of contracts.
Among the context-related determinants, Putnam (1993) found a positive relation between trust and civic
norms and the density of horizontal networks in the society. Nonetheless, Olson (1982) argued the opposite,
suggesting that the denser the networks, the more vulnerable is the society to special interest groups that
might lobby for privileges imposing disproportionate burdens to the rest of society (Knack, 2003).
Knack and Zak (2003) found that the factors related to a low social polarization and the formal institutions that
bound the domain of action of governments have a positive effect on trust. On the other hand, using data from
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the GSS, Alesina and La Ferrara (2002) found lower levels of trust in individuals characterized by any of the
following factors: traumatic experiences, belonging to a discriminated group (e.g. Afro-Americans), low income,
low levels of education, ethnic heterogeneity, and unequal income distribution. The same evidence is
presented by Rahn and Rudolph (2005) applied to certain cities of the United States. In addition, Martinez,
Ayala and Aguayo (2011) found evidence applied in the Mexican case that proved that trust diminishes with
the presence of segregation, the absence of participation in networks other than family, and the size of
communities. This evidence support Christoforou (2011) idea that thinking in social capital investment as a
result of rational agents is a narrow individualistic construct that underestimates the real power of society on
individuals.
Finally, the perception citizens have on the different institutions' performance affect trust. Chanley, Rudolph
and Rahn (2000) showed that individuals’ satisfaction with public services and their perception on safety shape
trust in governments in the United States. In this regard, Tyler (1994, 1995) found that citizens’ perception on
the existing fairness in the most important procedures in society, like the fiscal system, increases interpersonal
trust.
4. A model of trust and fiscal awareness in Spain
Following the literature we presented, we have built an empirical model of trust for Spanish governments
based on the premise that trust is a function of the socio-demographic profiles of individuals; the individuals'
perception on the quality of the public services that the different governments provide; their perception on
fairness in the procedural systems, mainly in the fiscal one; and the context variables related to the
environment in which they live, such as polarization and economic growth, among others.
The proposed model is based on the premise of the rational citizens, that is, trust is partially the result of
citizens’ perceptions on the government's performance. This means that they are more trustful when they
identify the outcomes of good government actions. This outcomes can be measured at two levels: at a micro
level, where they are synthesized according to the subjects’ reported perception of the public services quality
(Chanley et al., 2000); and at a macro level, where they are characterized by some relevant context-related
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variables, such as economic growth and income inequality, among others (Alessina & Ferrara, 1999 and
2000).
The equation (1) shows a generic model for Trust:
(1) Tig   T   Dij  S ig  C j  u ig
Where "T" denotes the level of trust of individual “i” on the government’s performance ("g"). And "D" is a matrix
containing the relevant socio-demographic variables of the individual; "S" contains variables reflecting the
perceptions on the government´s performance ("g") according to the perception of subject “i”; and "C" is a
matrix that includes the data related to the environment in which individual “i” lives, which is denoted by subindex “j”. Vectors "α", "β", “θ” and "δ" represent the parameters of the model or the sensitivity/likelihood of
trust to (a) change in the independent variables. Finally, “u” is the vector of residuals for each level of
government.
On the one hand, the set of equations (1) is designed to explore the antecedents or determinants of trust in the
Spanish governments. On the other hand, we want to model some hypotheses on the consequences of trust.
Although there are many factors suggested by theorists and previous studies, such as participation rate in
elections and politics in general (Beugelsdijk & Van Schaik, 2001), government's performance (Knack & Zack,
2003; King et al., 2002), the size of companies (Fukuyama, 1995; La Porta et al., 1997), and the general
economic performance (Dasgupta, 2000; Gambetta, 2000; Durlauf & Fafchamps, 2004; Keefer & Knack,
1997), we focus on just one possible consequence of trust: citizens' fiscal awareness.
Previous studies have focused on tax morale, which is usually associated with the degree of acceptance or
tolerance to tax fraud, rather than with fiscal awareness. For example, Alm and Torgler (2006) analyze the
influence of fiscal conditions on the tax morale in Europe and the United States, and highlight some significant
differences. Torgler (2003) studies the tax morale in post-communist countries and Germany after the
reunification, while Alm et al. (2006) analyze the tax morale in Russia before and after the political transition,
detecting an increase in the degree of trust in government, and finding that national pride improves fiscal
morale. Martínez Vázquez and Torgler (2005, 2009) analyze the correlation between the fiscal reform
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implemented in Spain in 1977 and the tax morale. Later, Alm and Gómez (2008) exploit the fiscal data base
and conclude that there exists a strong negative correlation between unofficial economic activity and tax
morale: the lower the tax morale, the higher the unofficial activity.
By the ‘‘slippery slope’’ framework, Kirchler et al. (2008) suggested a framework for tax compliance, as a
conceptual tool, in which both the power of tax authorities and trust in the tax authorities are relevant
dimensions for understanding enforced and voluntary compliance.
To sum up, there are many factors that may have an impact on tax morale: cultural factors, institutional factors,
trust in the system, sociological factors, and even globalization. (Alm et al., 2003; Torgler, 2003; Torgler and
Schneider, 2005; Murphy, 2005; Wahl et al., 2010; Hammar et al., 2008; Richardson, 2008 and Hofmann,
2008.
In the present paper, we prefer to use a concept of fiscal awareness, which is more restrictive and more
precise than tax morale. Fiscal awareness is responsible for citizens to contribute to funding public expenses,
according to their income and wealth, in a system ruled by the principles of equality and progressiveness in a
non-confiscatory environment.
Fiscal awareness requires some reflexive knowledge by the citizen. This knowledge concerns both public
revenues (how the state obtains its resources from the citizens) and public expenses (how the state spends its
revenues to benefit its citizens). Fiscal awareness, therefore, includes both unconscious components derived
from some principles and values that belong to the moral and ideological domain, and technical components
related to the objects and subjects involved in the fiscal process. In this paper, we understand fiscal
awareness as the individual perception of each citizen regarding fiscal ethics and fiscal morale of the society in
which they live (Alarcón & Tipke, 2007). This construct involves the voluntary tax compliance, the subjects'
fiscal knowledge and the intolerance to fiscal fraud.
These criteria was applied by Alarcón, De Pablos and García (2009), who used the information produced by
the initiative of The Fiscal Observatory Survey of the University of Murcia (FOSUM) to model fiscal awareness
according to individuals' age, education, labor status, income and reports on their satisfaction with the Spanish
fiscal system. In a follow-up study, Alarcón, Beyaert and de Pablos (2012) incorporate gender interactions and
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knowledge of the fiscal systems to explain the variations in fiscal awareness. In this line of results, Prieto et al.
(2006) found that the political view is the main driver of the degree of tax evasion and fiscal awareness by
means of an exercise based on an ordered probit model.
Following the above-mentioned attempts, we suggest that trust in Spanish governments influences fiscal
awareness, mainly because of the increasing intolerance to fiscal fraud. The hypothesis is that the higher the
level of trust in governments, the higher the degree of compliance with fiscal obligations. The rationale of this
proposal is disclosed by two explanations. On the one hand, from a rational perspective, reliable governments
might promote fiscal compliance because the funding of public services has a high return to tax payers, and
vice versa. On the other hand, from a psychological perspective, the individual cognitive dissonance produced
by evading taxes might be more powerful if the government is reliable than when it is not. In both cases, the
hypothesis establishes a direct linkage between trust and fiscal awareness.
Of course, tax evasion or elusion also depends on variables, such as the labor status of the individuals or the
efficiency of revenue agencies, that can promote this illegal activity, but we model just the individuals’
commitment to their fiscal obligations, not the degree of tax law observance. That is, an employee may have
no chance to commit a fiscal fraud because he is a captive tax payer according to the prevalent tax system.
Nevertheless, a distrusted government might make him not willing to comply with his fiscal obligations.
Equation (2) describes this relation:
_
(2) Fi   F   T i  Z i  u Fi
Where "T" represents the average trust at the different levels of government of individual “i”, and "Z" contains
socio-demographic variables of the individuals.
Equations (1) and (2) can be combined to introduce vicious or virtue circles. When people trust their
governments, the levels of rule compliance may increase (by equation 2), which leads to a decrease in
transaction costs for individuals and the government, and to an increase in public funds, enhancing the quality
of public services and increasing the level of trust in governments (by equation 1). On the other hand,
distrusted governments will find it more difficult to collect taxes and achieve citizens' cooperation, and that can
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surely affect the quality of public services. Thus, a variation in the fundamentals of trust, such as an increase in
crime rates or a scandal involving corrupt public officers, can cause an enduring low level of trust, through the
trust-fiscal awareness multiplier mechanism described above, making the total effect higher than the initial
impact on trust.
5. The data
As far as Spain is concerned, there are many surveys aiming at analyzing tax morale and Spaniards' attitude
towards tax fraud. The annual survey of the Institute of Fiscal Studies, known as Opiniones y actitudes fiscales
de los ciudadanos españoles (Fiscal Opinions and Behaviours of Spanish Citizens), analyzes the evolution of
the fiscal behaviour of the Spanish population. Recent studies (2010 and 2011) reveal conflicting opinions on
fiscal fraud. Another important survey is The Public Opinion and Fiscal Policy Survey from the CIS (Centre of
Sociological Research). These surveys have been explored from a purely statistically descriptive perspective
in Delgado et al. (2001), Delgado and Gutiérrez (2006) and Martínez-Vázquez and Torgler (2005).
Other useful antecedents are the studies on different countries by Torgler and Valev (2006, 2007), who
analyse the World Values Survey data (WVS, waves 1 (1981-1984), and 2 (1990-1991)) and the European
Values Survey data (EVS, 1999-2000) in order to shed some light on possible gender differences in the cases
of Belgium, Denmark, France, United Kingdom, Ireland, Italy, Netherlands and Spain.
In this paper, we use the Fiscal Observatory Survey of the University of Murcia, which is a poll conducted on
November 2007 especially designed to gather information on the values that shape Spaniards' fiscal
awareness. The studied population are all the residents in Spain over the age of 24, which, according to the
2005 census, are 32,440,321 people. A multilevel probabilistic approach is applied, with a first and second
stage stratification of drawing on an independent sample from each regional autonomous community.
The units included in the first stage are the 17 autonomous communities of Spain, together with Ceuta and
Melilla, stratified by gender and age. The second stage units are the provinces that form the autonomous
communities. Each autonomous community was assigned a quota that was proportional to the populations
under study in each province. A total of 1,500 surveys were carried out, which means working with an error of
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E = ± 2.58% for a bilateral level of confidence of 95.5%. This survey complements the results obtained in
previous studies1 that analysed people's feelings concerning fairness and legitimacy of taxes. Our conception
of fiscal awareness is based on socio-psychological principles and refers to the values taxpayers hold on the
fiscal system.
To establish these values and identify the possible differences due to the gender of the respondent, a
questionnaire on the following aspects was drawn up2: (1) the perception of fiscal fairness in the Spanish tax
system; (2) Spanish taxpayers' fiscal awareness, and (3) socio-demographic information. The fiscal awareness
module consisted of several items regarding the knowledge on the Spanish fiscal system, the distribution of
competences, the degree of satisfaction with public services, and the behaviour towards fiscal fraud.
Table 1 presents the description of the socio-demographic profile of the sample. The sample was almost
evenly divided by gender, being 49 the average age. 60% of the respondents declare a monthly income
between €1,240 and €3,340; 40% of them are employees in the private sector or public officers; and 60% have
secondary or higher education.
Table 1
Descriptives of Socioeconomic Characteristics
Mean
Std. Deviation
0.487
49.441
0.214
0.670
0.032
0.078
0.741
0.500
15.900
0.410
0.470
0.176
0.268
0.438
0.329
0.398
0.208
0.065
0.470
0.490
0.406
0.246
0.284
0.027
0.069
0.105
0.025
0.070
0.451
0.161
0.254
0.307
0.155
0.255
0.293
0.288
0.309
0.455
0.453
0.462
Demographic Profile
Male
Age
Bachelor
Married
Divorce
Widow
Children
Income (monthly)
0 to 1,240 €
1,240 to 2,300 €
2,300 to 3,340 €
3, 340 € or more
Labor Status
Employee
Employer
Self-employed
Bureaucrat
Student
Unemployed
Education achievement
Primary education
Secundary education
Tertiary education
Source: Authours' estimations using the 2007 Fiscal Observatory Survey
of the University of Murcia
Trust was measured by the item: "Please, rank the degree of trust you have in your city (autonomous
community or state) government in a scale from one to four, where one means no trust and four is full trust".
1Gloria
Alarcón García and Klaus Tipke (2007); Gloria Alarcón García, Elena Quiñones Vidal & Alicia Martínez Serrano (2007); Gloria
Alarcón García & Laura De Pablos Escobar (2007); Gloria Alarcón García, Elena Quiñones Vidal & Alicia Martínez Serrano (2008);
Gloria Alarcón García & Elena Quiñones Vidal (2008); Gloria Alarcón García, Laura De Pablos Escobar & Encarna Garre García
(2009).
2 Detailed information about the survey can be obtained from the authors on request.
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Mean values of trust are around 2.2, being marginally larger for city and autonomous community scenarios
than for the state government. The proportion of the respondents who score the lowest levels of trust (1 or 2)
rises from 62% for city and autonomous governments up to 72% for the state government.
The way individuals perceive government's performance was measured through three items related with the
benefits of public services and the fairness of the fiscal system. Concretely, the questions were the following:
"Please, rank the degree in which public services contribute to reduce poverty in a scale from one to four,
where one means 'no contribution at all', and four means 'great contribution'”; “Please, rank the degree in
which public services enhance welfare in a scale from one to four, where one means 'no contribution at all' and
four means 'great contribution'”; and “Please, rank the degree of fairness of our actual fiscal system in a scale
from one to four, where one means 'totally unfair' and four means 'very fair'”. The first two items reflect the
satisfaction felt by individuals with two current critical issues in Spain: social policies and the quality of the
public goods provided by the government. The other item concerns fairness in the fiscal rules for which
governments and parliaments are responsible. In view of the sample results, Spaniards are really sceptical
about the contribution of governments to reduce poverty, to enhance welfare, and about the fairness of the
fiscal system (75%, 66% and 73% of the respondents scored low levels on the above-mentioned items,
respectively). The corresponding mean values are 1.9, 2.1 and 2, respectively, for these variables.
On the other hand, we measure fiscal awareness as Alarcón, De Pablos and García (2009) did, that is, by
using a dummy variable that takes value 1 if the respondent chooses the option "Fiscal fraud is never justified"
to the question "In your opinion, fiscal fraud is justified because...". The rest of the alternatives were the
following: "Because of the excessive fiscal burden"; "Because it does not affect anyone"; and "Because the
government is inefficient". We believe that asking the question in that manner helps to eliminate the social
desirability bias, i.e. to prevent individuals from answering what is politically right instead of what they really
think. Clearly, if the question was directly asked as, for instance, "Do you commit fiscal fraud?"or "Do you think
that committing fiscal fraud is wrong?", most respondents would answer "no" to the first question, and "yes" to
the second one.
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Results show that 47% of the respondents chose one of the three justifications for committing fiscal fraud;
most of them justify fiscal fraud because the evasion does not affect anyone. It seems that providing
individuals with more options helps reveal whether they have strong principles about this issue or they are
looking for a good excuse to commit it. In contrast, Alm and Gomez (2008) used the item: "Do you mostly
agree or mostly disagree with the following statements? [...] Actually, it is not that bad to hide part of your
income since nobody is really affected by it". However, 81% of their sample disagreed on the statement, either
because the question framing induces social desirability bias, or because some individuals think fiscal evasion
is not necessarily bad, although the reason is not what the question proposes ("since nobody is really affected
by it").
Therefore, using the FOSUM item on tolerance to fiscal fraud allows us to count on a dependent variable with
a higher variance. The variance of the proportion of respondents who are intolerant to tax fraud is almost three
times higher than the variance of the proportion in the question found in the study by Alm and Gomez (2008).
Finally, the context-related variables included in the model for the autonomous communities were economic
growth, homicide rate, income inequality, and education level. Economic growth was measured as the GDP
growth rate per capita. The homicide rate corresponds to the number of homicides per one thousand
residents. The income inequality is calculated through the Ginni coefficient, which takes the income distribution
and education as the average number of years of education. The source of all variables is the Spanish
Statistical Office (Instituto Nacional de Estadística de España).
6. Results
We started obtaining estimations from both pooled ordinary least squares (OLS) and the random-effect
method that includes the context variables considered in this paper (homicide rate, economic growth, income
inequality and average educational achievement). In addition, dummies for the autonomous communities were
used to identify any remaining unobserved fixed factors associated with the political and geographical division
of Spain. We chose random effect estimators because the context variables are repeated measures in the
pooling equation, that is, the context variables (e.g. economic growth) refer to the autonomous communities so
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that all individuals of a particular community share the same context variables. Therefore, applying only fixed
effects would omit the context variables in the estimation, and it would not be possible to test the effect of the
context on trust.
Another relevant issue to deal with is the metric of the dependent variable. Adopting OLS or Panel data
implicitly assumes that trust is a continuous variable, although it is not actually so, because it is a discrete
variable that takes values in a scale from 1 to 4, according to FOSUM. However, we decided to deal with the
estimations under such a restrictive assumption only after comparing them with the ordinal probit estimations
of equation (1) (without any random effects). This equation recognizes the discrete nature of the variable and
verifies that the main conclusions are the same for both approaches. The ordinal probit results are available
under request to the authors.
The results for the trust equations are presented in Table 1. Few socio-demographic variables proved to be
significantly different from zero: the exceptions are the educational achievement dummies and, in some cases,
the dummy for individuals that are either an employer and/or self-employed, as well as the male condition. It is
interesting to note the presence of a reversal effect of education on trust depending on the level of
government. Trust in city authorities decreases as the level of educational achievement increases.
Nevertheless, trust in the state government increases as the educational achievement level raises. Education
has no effect on trust felt in autonomous community governments. Only in the trust equation in autonomous
community governments, both the employer/self-employed condition and the male one are significantly
different from zero, being even negative.
The important driver of trust in the different levels of Spanish governments is the quality of government's
performance, which is represented by the scores of three questions related to the agreement on the following
sentences: “Public services reduce poverty”; “Public services enhance welfare”; and “The fiscal system is fair”.
The coefficients of these items are positive, as expected, and significant (p<0.01) at all three levels of
government.
In the case of the context-related variables, the homicide rate has the expected negative sign and it is
significant for city and autonomous community governments (p<0.05). Economic growth is positive and
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significantly different from zero for city government (p<0.05) and marginally significant for the state
government (p<0.1). Higher average education and income inequality, represented by the Ginni coefficient,
are negatively correlated to trust at city level (p<0.05, p<0.05) and state level (p<0.05, p<0.1).
Turning to equation (2), fiscal awareness takes two values: 1 if the individual affirms there is no reason to
commit tax fraud, and 0 if he chooses any of the reasons provided in the survey. Therefore, we used a probit
regression model. Table 2 shows the results of the estimation of equation (2) for fiscal awareness.
To calculate trust, we used the average of trust scores for the different levels of government in order to avoid
collinearities among variables. The coefficient of this variable has the expected positive sign, and it is
significantly different from zero (p<0.05). Thus, evidence is consistent with the fact that fiscal awareness is an
important consequence of trust.
Except for trust, most of the controls we employed resulted non significant. Regarding the socio-demographic
controls, none of them proved to be significant in the regression except for the dummy variable of tertiary
education (p<0.01). Its positive sign points out that individuals with superior education tend to be more fiscal
aware than the rest of the population. Among other controls, only the level of knowledge on the fiscal norms
seems to have a marginal effect on fiscal awareness.
The marginal responses in the table show the average change in the likelihood of being fiscal aware per a unit
change in the independent variables. Thus, if the average degree of trust increases up to 2 (in a scale of 4);
then the likelihood will increase 4.4%. Subsequently, individuals at the maximum of the trust scale will be 18%
likelier to be fiscal aware than those with the minimum level of trust in their governments3.
7. Discussion
The empirical exercises suggest four main findings. The first one is that trust is strongly driven by the
perceptions on performance rather than by simple socio-demographic profiles. In the Spanish case, trust is
built through an individual sense that public services enhance welfare, government actions help to reduce
In addition, we can conclude that the likelihood of being fiscal aware increases 14% if the individual has achieved a tertiary education
level, and only 2% per each unit of the knowledge they have on fiscal rules.
3
15
poverty and the system is fair. The results confirm the rational citizen hypothesis, that is, individuals are more
trustful as a consequence of good governance, creating a virtual circle. According to Knack (2000) and
Beugelsdijk & Van Schaik (2001), this is because a high level of trust increases social capital, which improves
government performance through the channels we previously discussed.
Certainly, it could be argued that the relation is the other way round: people first trust or do not trust in their
governments for any reason, and then that decision shapes individuals’ frames and attitudes towards
government's actions. Unfortunately, we do not have any good instruments to monitor this endogeneity bias.
The second main conclusion is that context also matters. We included context variables to find out if the main
aggregate outcomes in the context individuals live shape their trust in their authorities, and they did so in some
cases. The prevalence of insecurity and income inequality punishes governments, and economic growth
encourages trust in governments. Trust is not just a matter of perception about governments’ actions; it is also
a function of the seriousness level of problems that individuals face in their regions and country, such as the
spread of violence, the polarization of the society and the economic activity. In this regard, our study supports
previous evidence, taken for the United States (Rhan & Thomas, 2005) and other countries (Alessina et al.,
1999, 2000), which deals with the fact that political trust is a multi-level phenomenon shaped by the context
dynamics and the individual perceptions on their government's performance.
The third implication of our results is that the effects of these two types of main trust drivers do vary depending
on each type or level of government. Table 3 presents beta coefficients of the main drivers of trust. It seems
that the perception on the capability of public services to reduce poverty is more important for the state
government than for the city and autonomous ones; however, the perception on the extent in which public
services enhance welfare is more important at local level than at the state one. The tax system fairness
variable has a greater impact on trust in the state government scenario than in the city one. And finally, the
context variables tend to be more important at city and state levels than at the autonomous one, except for
homicide rate, which is more important in city and regional governments than in the central one.
In the light of these results, it seems that Spanish citizens give more attribution to state government regarding
social policies (reduction of poverty) and fiscal system design; in contrast, they consider local governments are
16
better regarding welfare public services provided to the people. At the context level, it is interesting that most
of them are not significant in the autonomous community government but they are notably significant at city
and state levels. This is probably due to the fact that autonomous community governments are rather new, as
they were created in the 1986 Constitution, and their action domain is still confusing for the average citizen.
Finally, the fourth main conclusion is that fiscal awareness is shaped by trust in government and, indirectly, by
the citizens’ perceptions on government's performance and the socioeconomic environment. In this sense,
taxpayers' behaviors towards fiscal obligations are not just a matter of principles and values, but a
consequence of the level of trust citizens have in their authorities.
8. Final Comments
Making use of the 2007 Fiscal Observatory Survey of the University of Murcia, we tested the hypotheses on
the determinants of trust in Spanish governments, at their three levels: city, autonomous community and state.
Our results show that trust in Spanish governments is a multi-level phenomenon; it involves the way citizens
perceive government's performance and the fairness of the fiscal rules at the micro level; the basic objective
performance of the regional zones in terms of economic growth; income inequality, and safety at the macro or
context level.
Moreover, trust in governments shapes fiscal awareness creating virtuous or vicious loops and building trust
and distrust traps. For example, trusted governments enhance fiscal awareness among its citizens, which
might improve the productivity of the government, which increases trust, and so on. Certainly, the mechanism
also works the other way: distrusted governments reduce fiscal awareness, worsening government's
performance and therefore trust. This is what we called the trust-fiscal awareness multiplier.
One major implication of this reality is that minor changes in the fundamentals of trust in the autonomous
communities should produce great differences in the balance between trust and fiscal awareness among these
regions. As context variables and perceptions on performance are really correlated among regions in a single
country, the differences in trust and fiscal awareness should be more remarkable among countries. Extending
this study to the cross-nations framework is a promising line of research, and fortunately the Fiscal
17
Observatory Survey is currently being applied to pilot samples in almost ten countries, so we expect that
relevant information will be available very soon.
It would be also important to collect information on possible instrumental variables that could help us
disentangle the likely simultaneity between trust and perceptions on performance, and fiscal awareness and
trust. Knack (2003) found that some variables, such as the ownership of the houses in which the respondents
live, the time they have lived in their communities, their religious activities, memberships to clubs and political
parties, are good candidates for being instrumental variables in order to tackle this problem.
Finally, the economic recession that took place in Spain and the European countries in 2008 and ended up
with the debt crises of Greece, Spain, Portugal and Ireland in 2011, is surely damaging the social tissue of
these countries. This experience makes us think that the importance of the context variables and the macrolevel of trust may be underestimated in cross section studies like ours. In order to capture the genuine impact
of economic growth, for example, there is a need for studies that use survey information for some year.
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http://ssrn.com/abstract=764944 ]
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[Available
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SSRN:
Table 2
Trust and Fiscal Awareness variables
Mean
Std. Deviation
Trust
City Government
2.219
0.992
Autonomic Community
Government
2.201
0.918
State Government
2.021
0.885
1.922
0.925
2.144
0.961
Fiscal system is fair
2.036
0.910
Fiscal Awareness
Fiscal fraud is justified
because of the excess fiscal
burden
Fiscal fraud is justified
because it does not affect
anyone
0.073
0.260
Perception about public
performance
Public services reduce
poverty
Public services enhance
welfare
0.239
0.427
Fiscal fraud is justified
because the government is
inefficient
0.107
0.309
Fiscal fraud is never justified
0.536
0.499
Knowledge of fiscal system
2.567
1.057
Source: Authours' estimations using the 2007 Fiscal Observatory Survey
of the University of Murcia
Table 3
Trust in Spain Governments model
City
Autonomous Community
Panel
Random
PoolingOLS
Effects
(3)
(4)
State
PoolingOLS
(5)
Panel Random
Effects
(6)
PoolingOLS
(1)
Panel Random
Effects
(2)
Constant
1.500683***
(0.087928)
5.247262***
(1.649702)
1.454989***
(0.081729)
1.739499
(1.721014)
0.998643***
(0.077283)
4.930764***
(1.54903)
Secundary Education
-0.145243**
(0.063661)
-0.1356**
(0.063908)
-0.022152
(0.058987)
-0.017773
(0.058915)
0.109002*
(0.055956)
0.125636**
(0.056001)
Tertiary Education
-0.166939***
(0.062055)
-0.171613***
(0.062782)
-0.017269
(0.05754 7)
-0.038095
(0.057893)
0.12855**
(0.054507)
0.133192**
(0.054897)
-0.038241
(0.052626)
-0.075569
(0.102347)
0.102748***
(0.031587)
0.203824***
(0.030476)
0.093803***
(0.029439)
-0.11967**
(0.048747)
-0.157661*
(0.094846)
0.088409***
(0.029194)
0.173675***
(0.028235)
0.130952***
(0.027254)
-
-0.109109**
(0.048315)
-0.178369*
(0.094761)
0.088356***
(0.028959)
0.165721***
(0.028365)
0.132061***
(0.027102)
-0.369018**
(0.186878)
0.733698
(2.059233)
-0.021967
(0.026925)
1.017885
(5.478569)
-0.018374
(0.046209)
-0.142686
(0.09014)
0.135716***
(0.027764)
0.12291***
(0.026772)
0.218615***
(0.025824)
-
-0.031803
(0.052435)
-0.08236
(0.102768)
0.110445***
(0.031495)
0.184288***
(0.030777)
0.095752***
(0.029432)
-0.442263**
(0.189764)
4.839963**
(2.005586)
-0.061863**
(0.026393)
-12.20369**
(5.247695)
-
-0.017634
(0.045915)
-0.152526
(0.090275)
0.14084***
(0.027485)
0.120287***
(0.026953)
0.219367***
(0.025744)
-0.248121
(0.172873)
3.004886*
(1.886019)
-0.064924***
(0.024843)
-11.038**
(4.940966)
0.09135
0.086635
0.111763
0.099480
0.092933
0.088177
0.120857
0.108700
0.141766
0.1372329
0.163375
0.151806
1209.242
19.37435***
1182.076
1017.129
19.53957***
985.8174
903.7455
31.31403***
880.9903
Male
Employer/Self
employed
Public Services
reduces poverty
Public Services
enhance welfare
Fiscal System is fair
Homicide rate
-
Economic growth
-
Average Education
-
Ginni Coefficient
R2
Adjusted R2
Sum of Square
Residuals
F
-
-
Note: ***p<0.01, ** p<0.05, *p<0.1
Source: Authours' estimations using the 2007 Fiscal Observatory Survey of the University of Murcia
23
Table 4
Fiscal Awarness and Trust in Spain
Marginal
Responses
Coefficients
-0.539261***
(0.142541)
0.117388**
(
Trust
0.046415)
0.392911***
Tertiary Education (0.075337)
0.053141*
Knowledge
(0.053141)
McFadden R2
0.053189
Likelihood ratio
104.5961***
Sum of square
residuals
328.9451
Constant
0.044
0.147
0.020
Source: Authours' estimations using the 2007 Fiscal
Observatory Survey of the University of Murcia
Table 5
Beta Coefficients of Trust determinants
City
Autonomous
Community
State
Public Services
reduces poverty
0.1031
0.0891
0.1474
Public Services
enhance welfare
0.1786
0.1734
0.1306
Fiscal System is fair
0.0879
0.1308
0.2256
Homicide rate
Economic growth
-0.1400
0.2101
-0.1261
0.0344
-0.0880
0.1462
Average Education
Ginni Coefficient
-0.2929
-0.1690
-0.1123
0.0152
-0.3444
-0.1713
Source: Authours' estimations using the 2007 Fiscal Observatory Survey
of the University of Murcia
24