As countries progress, they require more complex institutions; however, economic and institutional processes frequently do not evolve at the same pace, as institutions are subject to greater inertia. This problem is particularly relevant in middle-income countries (MICs), as these countries experience episodes of intense economic growth. Therefore, the absence of institutional change can be a cause of a middle-income trap (MIT). The chapter discusses the criteria that define institutional quality, and examines the various ways in which institutional change occurs. Empirical exploration reveals the existence of two anomalous behaviors in middle-income regions: excessive institutional fluidity in Latin America and, in contrast, an excessive institutional stickiness in MENA. Based on prior works, the author explores the macro determinants of institutional quality. His results suggest that per capita income, tax revenue, redistribution (rather than mere inequality), education, and international openness all appear to be strong determinants of institutional quality.
Gross Domestic Product Per Capita and Individual Income Tax Revenue: Empirical Evidence from Vietnam