An examination of how local US newspaper closures affect public finance outcomes for local governments. Following a newspaper closure, municipal borrowing costs increase by 5 to 11 basis points, costing the municipality an additional $650,000 per issue. This effect is causal and not driven by underlying economic conditions. The loss of government monitoring resulting from a closure is associated with higher government wages and deficits and increased likelihoods of costly advance refundings and negotiated sales. A decline in local newspapers means a decline in local coverage, resulting in less governmental accountability and more community problems. The results of this paper indicate that local newspapers in the US hold their governments accountable, keeping municipal borrowing costs low and ultimately saving local taxpayers money.

Authors: Pengjie Gao, Chang Lee & Dermot Murphy