AbstractThis paper provides new evidences about the determinants of institutional quality. Prior to implementing our empirical research, we discuss the criteria that should be used to judge the quality of institutions. Then, we identify the factors that, according to these criteria, determine institutional quality. The results obtained in the estimated model enable to draw some interesting conclusions. Firstly, development level determines institutional quality: the highest the former, the highest the latter. Secondly, income distribution conditions institutional quality. Thirdly, a sound tax system is positively associated with institutional quality improvement. Taxes provide the necessary revenue to generate quality institutions and create a narrower and more demanding relation between State and citizens. Finally, education improves institutional quality. Copyright © 2010 John Wiley & Sons, Ltd.