In government we trust: The role of fiscal decentralization

•We find fiscal decentralization and trust in government to be positively related.•The positive association does not extend to non-government related institutions.•Results lend support to using the subsidiarity principle in theoretical frameworks.

This paper looks whether fiscal decentralization is associated with trust of citizens in government related institutions. We expect a positive relationship based on the argument of governments' improved responsiveness to preferences of citizens that is perceived to result from more decentralized fiscal systems. Survey data from up to 42 countries over the period 1994-2007 confirm this positive relationship. It is robust to controlling for unobserved country heterogeneity and a wide array of other explanatory variables that are associated with trust in government related institutions. Moreover, we do not find that the positive association with fiscal decentralization extends to other, non-government related institutions.