ABSTRACT
This paper analyses the effect of social trust on the institutional structure of the state. Social trust can be defined as the level of trust that a given person has toward people whom he or she does not know personally. Trust can affect many aspects of the state’s institutional structure by reducing transaction costs and ameliorating the free-rider problem. This article focuses on three dimensions related to the state’s institutional structure: red tape, corruption, and the welfare state. In a society with a high level of trust, individuals are less subject to unnecessary bureaucratic procedures, pay their taxes with peace of mind, and, thanks to high tax revenues, benefit more from the development-friendly public expenditures. This article indicates that a high level of trust makes the state’s institutional structure function in a way that benefits society as a whole.