When a town’s newspaper shuts down, is it possible that local government will become more expensive or less efficient as a result?
A new study conducted at the University of Illinois at Chicago and Notre Dame says yes, that is a possible outcome.
“A lot of studies show that when newspapers close, local politicians become lazy and voters become less informed and there’s lower voter turnout,” said Chang Lee, an assistant professor of finance at the University of Illinois at Chicago and one the study’s authors. “But what we find is that there are actually costs – monetary costs – that impact local citizens as well.”
To reach that conclusion, Dermot Murphy – who also worked on the study – said they cross-referenced newspaper closures from 1996 to 2015 with data on government borrowing costs.
“So we look at the relationship between newspaper closures and long-term government costs, and we found that after a newspaper closes, we see higher borrowing costs for that local municipality,” said Murphy, an assistant professor of finance at UIC.
He said the reasoning behind higher borrowing costs comes from the disappearance of a media watchdog to keep local government in check.
“So if a lender wants to lend money to a government, and they deem that the government is a risky borrower, then the lender would demand a higher interest rate,” Murphy said. “That’s a principle of finance.”
Lee joins us to discuss the study’s methodology and findings.