Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance

Source: Pengjie Gao – University of Notre Dame, Chang Lee and Dermot Murphy – University of Illinois at Chicago, July 11, 2018, presented at the Brookings Municipal Finance Conference July 17, 2018

From the abstract:
Local newspapers hold their governments accountable. We examine the effect of local newspaper closures on public finance for local governments. Following a newspaper closure, we find municipal borrowing costs increase by 5 to 11 basis points in the long run. Identification tests illustrate that these results are not being driven by deteriorating local economic conditions. The loss of monitoring that results from newspaper closures is associated with increased government inefficiencies, including higher likelihoods of costly advance refundings and negotiated issues, and higher government wages, employees, and tax revenues.

View Murphy’s slides
View McGranahan’s slides

How closures of local newspapers increase local government borrowing costs
Source: Vivien Lee and David Wessel, Brookings Institution, Up Front blog, July 16, 2018

Local newspaper closures increase local government borrowing costs, according to a paper to be presented at the 2018 Municipal Finance Conference at Brookings. The paper, “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance,” also finds that local newspapers are especially important in states with low quality governance, and that online media are not acting as sufficient substitutes for local papers.

Pengjie Gao of the University of Notre Dame and Chang Lee and Dermot Murphy of the University of Illinois at Chicago are among the first to examine the effect of reduced local news coverage on local government finance. From 2003 to 2014, the circulation of local newspapers decreased by 27 percent, and statehouse reporters decreased by 35 percent.

Using data on local newspapers and municipal bond yields from 1996 to 2015, the authors compare municipal bond yield spreads for counties with three or fewer local papers before and after a closure, to counties where no local papers closed. Three years after a newspaper closure, municipal bond yields in that county increase by 0.05 to 0.11 percentage points, they find. The authors find similar results when comparing the effect of closures on bond yields between counties with few local newspapers and counties with many papers. They argue that this is because closures in counties with high numbers of local newspapers will probably not affect local news coverage, as other newspapers may fill in any potential information gaps.