WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Using data from the OeNB Euro Survey, this paper sheds light on the determinants of trust in national governments in ten Central, Eastern and Southeastern Europe (CESEE) countries in the period 2009-2015. Using a unique data set that allows us to construct a measure of income inequality at the regional level, this study is one of the first to focus on the impact of regional income inequality on trust in public institutions for most of the countries in our sample. By applying multilevel modelling to account for the hierarchical structure of the data, our main findings indicate that while trust in national institutions increases with relative income, it overall declines with the increase of regional inequality. This result is valid across different specifications tested and despite the slight decrease of income inequality over the period as shown by the regional Gini index. In addition, our analysis shows that institutional trust in the CESEE countries tends to be pro-cyclical, while households in the EU countries in our sample react less negatively to higher income inequality.