Building Institutional Legitimacy: Elites, Markets, and Inequality Through the Voice-Choice-Transparency-Trust (VCTT)...

Institutional legitimacy-the belief that authorities are just and deserving of compliance-depends on the interplay of participation, pluralism, transparency, and trust. This study applies the Voice-Choice-Transparency-Trust (VCTT) framework to construct a composite institutional quality index (INST) and to examine how elite behaviour, market structure, inequality, and development jointly shape legitimacy across countries.

Using an unbalanced panel of 22 countries from 2020 to 2024 (T = 5), the study combines hierarchical multiple imputation with panel econometrics. Institutional quality (INST) was derived from equally weighted, standardised VCTT pillars. Core regressors include the Elite Quality Index (EQx), market power (mark-up), the Gini coefficient, and GDP per capita. Two complementary estimators were applied: a pooled panel specification and a Mundlak correlated random-effects model with within-between decomposition, both corrected for heteroskedasticity and cross-sectional dependence using Driscoll-Kraay robust standard errors.

Higher Elite index values are positively associated with institutional quality, whereas greater market concentration is negatively associated with it. The Mundlak model confirms a positive within-country effect of elite quality and a negative within-country effect of rising inequality, while between-country averages suggest that nations with productive elites and moderate inequality sustain stronger institutions.

Across the sample, institutional legitimacy strengthens where elites are value-creating and markets remain competitive. Concentrated market power erodes institutional quality, and inequality's influence is context-dependent-detrimental when it widens domestically but more neutral when moderate and embedded in stable development trajectories. Because the panel covers only five annual waves, the findings are interpreted as robust associations rather than definitive long-run causal estimates.