Study: Decrease In Local News Coverage Leads to Increase In Government Borrowing

Local news is endangered, that’s no revelation. While there’s debate about whether huge conglomerates and hedge funds gobbling up local newspapers and paring them down is saving or killing them, the fact remains: Journalism is changing. 

How far can a newspaper be stripped before it ceases to exist? Before its output becomes so minimal that it’s shuttered for good? 

When that happens, the staff and community lose out on a vital source of employment and critical information. A recent study shows that the effects of a decrease in local news has repercussions that go well beyond the newsroom.

In a paper presented this week at the Municipal Finance Conference — a collaboration between the Brookings Institute, Brandies International Business School, Washington University and the University of Chicago — Pengjie Gao of the University of Notre Dame and Change Less and Dermot Murphy, both from the University of Illinois at Chicago, delivered their findings.



The paper, “Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance,” represented one of the first studies that examined the effect on local government finance following a reduction in local news coverage.  

The researchers noted from 2003 to 2014, local newspaper circulation decreased by 27% and the presence of statehouse reporters decreased by 35%.  

The authors of the study used data on local newspapers and municipal bond yields from 1996 to 2015. They compared the yield spreads from counties with three or fewer local newspapers before and after a closure, as compared to counties where no closures happened. 

Their finding: three years after a newspaper’s closure, municipal bond yields increased by .05 to .11 percentage points. The results were similar between counties with closures and counties with few local papers to begin with. 

So why the increase?

The authors suspect it happens as a result of areas with fewer resources to close the gap. Local government is allowed to go unchecked and increased borrowing is upped for two key reasons: less information is available to the public and officials are monitored less closely, which results in a reduction of quality governance. 

Other areas that saw deterioration following the closure of local papers include government wage rates, government employees per capita and tax dollars per capita. 

The full study is available online

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