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Political regimes and publicly provided goods: why democracy needs development

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Abstract

While most of the theoretical literature suggests that democracy promotes the provision of public goods, the findings of empirical studies are inconclusive. Drawing on a simple model, this paper aims at reconciling theory and evidence. We argue that the stronger dependence of more democratic governments upon public support has two opposing effects: on the one hand, it encourages these governments to increase goods provision in order to generate more loyalty. On the other hand, it raises the leaders’ incentives for kleptocratic behavior. The model predicts that the latter effect may dominate in poor countries. In countries with higher income levels, democracy is expected to increase public goods provision. Utilizing 11 indicators of education, health, infrastructure and governance both hypotheses are confirmed by panel regressions including 154 countries over the period from 1960 to 2014. We also show that the omission of per capita income as a moderator variable of democracy may result in small and insignificant empirical estimates.

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Notes

  1. In the following, we will refer to such goods as “publicly provided goods”. In the literature, those goods often are called “public goods”. They do, however, usually not satisfy the criteria of non-excludability and non-rivalry fully.

  2. According to Lott, his finding reflects the fact that totalitarian governments use education as an instrument for indoctrination.

  3. This is obvious for full democracies where governmental survival is depends on the electoral support of the citizenry.

  4. Note that y denotes both total and per capita income because the size of the population is normalized to unity.

  5. Note that we abstain from formulating hypotheses regarding the tax rate. The main reason is that the model presented here focuses on the use of tax revenue for public spending and does not account for the redistribution of income among citizens by transfers. The latter perspective may lead to the result that democracy is associated with higher tax rates (see Acemoglu and Robinson 2005). However, since this paper focuses on publicly provided goods, the redistributional role of taxes is not considered further for the sake of simplicity.

  6. Using data on the population’s average years of schooling provided by Barro and Lee (2013) and accounting for the mentioned delay by time lags of democracy and income yields results consistent with the findings presented in this paper. The regression tables are available upon request.

  7. The data are available from the author upon request.

  8. A specific lag order is chosen if the null hypothesis of no autocorrelation cannot be rejected at the 5% significance level.

  9. As further measures of goods provision, the share of people with access to fresh water sources and sanitation facilities were considered. However, within our econometric framework, valid inferences for those variables were not possible owing to their short time coverage and their high-order residual autocorrelation.

  10. To be precise, \(y_{it} = 0\) and \(y_{it} = 1\) are the lowest and the highest average per capita incomes of the 5-year periods in the sample, respectively. To simplify terminology, we will refer to them as the lowest / highest per capita income.

  11. Since our sample includes full autocracies as well full democracies according to both democracy indicators, the estimated effect is that of full-scale democratization.

  12. Note that no overlaps exist between the indicators used to form the “Electoral democracy index” and our indicators of rule of law and corruption taken from the VDem data.

  13. We also estimated models using the democracy indicator of Boix et al. (2013), with qualitatively similar results. The regression tables are available upon request.

  14. Instrumenting the CGV scores with the BR sores gives similar results.

  15. Similar evidence is obtained when using the FHPR as independent variable.

  16. Further robustness checks not presented here included: (1) principal component analysis (PCA) to aggregate all indicators of goods provision into a single index that then is used as the dependent variable. (2) Changing time period length from 5 to 4 years and 8 years, respectively. In all cases, the results remain qualitatively stable. The results are available upon request.

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Acknowledgements

I thank Alexander Kemnitz for helpful discussions. I also thank the editor William F. Shughart II, three anonymous reviewers, the participants of the 16th Public Finance Seminar at WZB Berlin and the participants of the seminar at TU Dresden for their comments and suggestions.

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  1. Faculty of Business and Economics, TU Dresden, 01062, Dresden, Germany

    Martin Roessler

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Appendix

Appendix

See Tables 8 and 9.

Table 8 Descriptive statistics
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Table 9 Estimated threshold incomes (\({\tilde{y}}\)) (GDP per capita in 2011 US$, PPP) based on Table 3 and the shares of countries in 2014 for which adverse effects of democracy are predicted (\(y < {\tilde{y}}\))
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Roessler, M. Political regimes and publicly provided goods: why democracy needs development. Public Choice 180, 301–331 (2019). https://doi.org/10.1007/s11127-019-00638-y

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