Democracy and Data Dissemination: The Effect of Political Regime on Transparency

1. Democracy and Data Dissemination: The Effect of Political Regime on Transparency B. Peter Rosendorff, NYU James R. Vreeland, Yale IPES, Princeton, November 2006

2. Is transparency “incentive compatible”? • Generally • Under what conditions do rulers act in the best interests of the ruled? • Representatives may divert resources • Elections may act as disciplining devices – retrospective voting • Consumers/voters demand transparency • When will policymakers supply transparency? • Is transparency incentive compatible?

3. Key insights • Policymakers have an incentive to be more transparent when • Survival in office depends on electoral accountability • (democratic polities) • Election outcomes are uncertain

4. Policy Instruments • Monetary base • Direct control • Inflation • Costly to society • Redistributive effects • Towards borrowers from lenders • Tax on money holdings • Revenues accrue to the government • Seignorage • "The amount of real purchasing power that government can extract from the public by printing money." -- Cukierman 1992

5. Intuition: Incentive Compatible Transparency • Monetary policy is made under uncertainty • Policymakers are uncertain about the aggregate state of the economy at election time • Electorate can’t distinguish between (exogenous) aggregate economic shocks • And the executive's excessive inflation tax (endogenous). • For example • If voters observe high real income in any period • Voters infer aggregate conditions were good, and executive has not been excessively inflationary • Voters inclined to reelect the incumbent • If voters observe low incomes • Voters infer aggregate state was poor and/or • The executive extracted/inflated too much • Voters inclined to evict the incumbent • Possibility of “unfair eviction” • Extraction was modest, but exogenous conditions conspired against the executive.

6. Accountability • Autocrats • Executives are less accountable to the electorate • Will extract more and worry little about eviction • Democratic Executives • Sensitive to the will of the voters • Will moderate extraction, but still under bad enough shocks be kicked out of office • Democrats are more likely to be subject to unfair eviction.

7. Transparency • Transparency in policymaking • Voters can better (but still imperfectly) separate aggregate shocks from policy • Voters punish extractive behavior, not low incomes • Smart policymaker • One that is subject to unfair dismissal – democratic executive • May choose to relinquish opportunities for rent extraction • In exchange for eliminating the risk associated with being unfairly dismissed • The autocrat – does not fear unfair dismissal • Will not be willing to relinquish rent extracting opportunities • Hence those politicians sensitive to the electorate adopt transparent modes of policymaking • In order to enhance the possibility of remaining in office.

8. Executive • Nature • Voters • Voters • Inflation • Shock • Savings • Reappoint? Model • Large number of identical consumers/voters • Infinite horizon • Voters choose savings and reelection rule • Govt chooses inflation tax • Inflation redistributes and is a public bad. • Non-Transparency, in each period • Payoffs: • Voters: • Government

9. Non-transparency • Will of the voters: ex ante probability of voters recommending reelection • Regime Type: The ex ante probability of keeping office • σ in [0,1] : the degree to which the sentiments of the voters are binding on the executive • σ =1 : pure democracy • σ =0 : pure autocracy

10. Executive’s Reaction Function π u U

11. Transparency • Voters do not directly observe π • The policymaker announces ex ante a policy • Credible source (WB, IMF, independent agency) • Announce if • Sequence • Announcement and Policy • Savings • Signal • Election • Nash

12. Transparency • Voters condition their reelection rule on the announcement • As before, • If and • reelect, • evict otherwise • Voters are weakly better off

13. Proposition • NE • Transparency is preferred by both players when the polity is sufficiently democratic

14. The Parameter Space σ Transparency Preferred by policymaker Non-transparency preferred 1 δ Sufficiently democratic executives prefer transparency.

15. Evidence • Transparency – take advantage of a hindrance • Missing data – World Development Indicators (World Bank) • Inflation • Unemployment • GDP growth • Infant Mortality Rates • Regime • Przeworski et al (2000) - Dichotomous measure • Key government offices (executive and legislature) are filled through contested elections

16. Reporting of Data by Regime

17. But Democracies are… • Richer (control for GDP/capita) • Recent (use hazard model) We also control for: • IMF participation • Country fixed effects • Regional effects

18. Controls: GDPPC and IMF

19. Controls and Country Fixed effectsConditional Logit

20. RegionalEffects,Controls.BasicLogit

21. RegionalEffects,Controls.Duration Dependence

22. Conclusions • Methodological Implications • Definition of democracy • Minimalist definition of democracy actually covers more than just elections • Implies transparency too. • Missing Data • Highly correlated with regime type • Researchers interested in the consequences of regime type cannot simply use the available data • Must recognize the bias that emerges. • Modest attempts to separate out the oft conflated notions of democracy, accountability and transparency.