No news is costly news: the link between the diffusion of the press and public spending

Ilaria Petrarca

No 16/2013, Working Papers from University of Verona, Department of Economics

Abstract: This paper studies the link between the diffusion of news and spending decisions. We develop a canonical model that illustrates how the spread of information affects expenditures close to elections, conditional on the electoral rules. With the indirect election of the incumbent, news limits total spending by reducing the most targetable expenditure item; with the direct election of the government, it leaves unaffected total spending and narrows the gap between the opposite variations of the most and the least targetable expenditure items. We test these hypotheses on a dataset of Italian Regions from 1984 to 2008, approximating the spread of information with the diffusion of newspapers. We estimate the effect of news conditional on the electoral rule, exploiting a reform that introduced the direct election of the governor in 1999. The empirical analysis confirms the expectations, and suggests that capital expenditure is the most targetable item. The results are robust to alternative categorizations of press and indicate a deeper effectiveness of the diffusion of local press.

Keywords: Local diffusion of newspapers; expenditure composition; electoral expenditure cycles; dynamic panel estimation (search for similar items in EconPapers)
JEL-codes: D72 D83 H72 (search for similar items in EconPapers)
Pages: 32
Date: 2013-09
New Economics Papers: this item is included in nep-cdm, nep-pol and nep-ure
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Journal Article: No news is costly news: The link between the diffusion of the press and public spending (2014)
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