1. 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. 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. 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. 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. 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. 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. 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. 8 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 1. Executive 2. Nature 3. Voters 4. Voters Inflation Shock Savings Reappoint?

9. 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. 10 Executive’s Reaction Function u π U

11. 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. 12 Transparency Voters condition their reelection rule on the announcement  As before,  If and reelect, evict otherwise Voters are weakly better off

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

14. 14 The Parameter Space Transparency Preferred by policymaker Non-transparency preferred σ δ1 Sufficiently democratic executives prefer transparency.

15. 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. 16 Reporting of Data by Regime

17. 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. 18 Controls: GDPPC and IMF

19. 19 Controls and Country Fixed effects Conditional Logit

20. 20 Regional Effects, Controls. Basic Logit

21. 21 Regional Effects, Controls. Duration Dependence

22. 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.