The Importance of Institutional Trust in Explaining Life-Satisfaction: Lessons From the 2008 Global Financial Crisis

Abstract

ABSTRACT We theorize that greater institutional trust leads to higher levels of life satisfaction and test our hypothesis empirically on a diverse sample of 27 countries for the period of the 2008 Global Financial Crisis and its aftermath. We used country-level data with a time-series cross-sectional design to examine how changes in institutional trust over the period of the crisis and beyond affected changes in life satisfaction vis-à-vis well-established predictors of institutional trust. We found that institutional trust, together with a subjective assessment of the economic situation, is the only significant predictors explaining life satisfaction during the crisis and its aftermath. The magnitude of the effect of institutional trust demonstrates resilience and did not change due to the crisis. The results of individual-level analysis confirmed this conclusion. The individual-level analysis also highlights that the effect of institutional trust is relatively stronger than the effect of many well-established individual-level characteristics. The main theoretical conclusion of our study is that institutional trust is one of the most important determinants of life satisfaction. Policy makers and international donors should focus on nurturing institutional trust through institutional reforms. From the research standpoint, our findings suggest that institutional trust should be included as one of the covariates in studies on life satisfaction.