This paper was presented at the 2018 Municipal Finance Conference on July 16 & 17,2018. The conference is a collaboration of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, the Brandeis International Business School’s Rosenberg Institute of Public Finance, Washington University in St. Louis’s Olin Business School, and the University of Chicago’s Harris Institute of Public Policy. It aims to bring together academics, practitioners, issuers, and regulators to discuss recent research on municipal capital markets and state and local fiscal issues.
“[C]losing local newspapers increase government borrowing costs because (1) less information is publicly available, and (2) local officials are no longer monitored as closely, reducing the quality of governance.”
The authors speculate that closing local newspapers increase government borrowing costs because (1) less information is publicly available, and (2) local officials are no longer monitored as closely, reducing the quality of governance. The authors show that newspaper closures are associated with deterioration in many government efficiency metrics, including government wage rates, government employees per capita, and tax dollars per capita. The authors also say that local newspapers are especially important in states that have initially low-quality governance. Previous research suggests that the geographic distance between a state’s economic and political centers is a useful measure of the quality of governance; longer distances are associated with lower quality governance. Building from that finding, the authors find that newspaper closures increase borrowing costs by 0.12 percentage points in states with low quality governance, compared to only 0.06 percentage points in states with high quality governance. Finally, the authors find suggestive evidence that alternative sources of media, such as the internet, are not acting as sufficient substitutes for local papers. Local issues are often not topical enough for the national news media, they say, and many non-traditional news sources tend to disseminate content rather than produce new information. Using state-level data on internet usage, the authors show that the effect of local newspaper closures on public borrowing costs does not differ between states with high and low internet use. If the internet is indeed a good substitute for local papers, they explain, the relationship between closures and borrowing costs should be mitigated in states with high internet use. But that is not the case.