This chapter explores the factors that operate at a societal level to build or destroy social trust. The analysis is based on unique data about the quality of public institutions at the regional level within the EU, and the authors test the tenability of four common explanations for variations in social trust: economic inequality, ethnic diversity, the quality of public institutions, and the degree of political participation by citizens. The analysis shows that the quality of public institutions is the strongest factor underlying regional variations in trust within countries. Economic inequality also proves to be a factor to be reckoned with for explaining variations in social trust. By contrast, the degree of ethnic diversity and the extent to which citizens participate politically have less importance for variations in trust. The overall conclusion is that increasing the quality of public institutions should have first priority if our aim is to reduce the prosperity gap between countries and regions in Europe.

Fostering economic cohesion among the regions of the European Union (EU) is a primary policy goal of the EU Commission, and since the mid-1970s Structural Funds have been used as a key policy tool to achieve this goal. Although Structural Fund grants to regions have relatively clear criteria – namely, the level of economic development and structural factors such as unemployment – several scholars have highlighted an empirical puzzle: there is wide variation among regional allocation of funds that can be explained by factors other than economic ones. This chapter builds on this recent literature that has elucidated many political-institutional variables and adds an alternative explanation as to why certain regions receive more structural fund grants on average – the level of state capacity, or ‘quality of government’ (QoG). The chapter finds that even when controlling for standard economic and political factors, QoG explains significant regional variation in grant allocation, and the effect of QoG is even more pronounced as regions have more political and fiscal autonomy. This finding highlights a strategic dynamic between the three actors – regional, national and European Commission – in the multilevel negotiations for appropriations of Structural Fund grants to EU regions.