ECONOMIA INFORMALE, EVASIONE FISCALE E CORRUZIONE V I XX Pavia, Aule Storiche dell’Università, 24 - 25 settembre 2012 CONFERENZA ASYMMETRIC INFORMATION AND POLITICAL BUDGET CYCLES: THE EFFECT OF THE LOCAL DIFFUSION OF NEWSPAPERS ILARIA PETRARCA società italiana di economia pubblica - c/o dipartimento di scienze politiche e sociali dell’università di pavia This version: September 6th , 2012 Asymmetric information and political budget cycles: the effect of the local diffusion of newspapers Ilaria Petrarca 1 Abstract This paper estimates the effect of the local diffusion of newspapers on Italian Regional public expenditure from 1984 to 2008. We exploit an original dataset that distinguishes economic from general-interest journals. We find 1) electoral increases of total and capital spending and decreases of current expenditure only after the introduction of electoral and fiscal reforms in the mid-90s; 2) press constrains, as expected, only the expenditure subject to electoral manipulation, i.e. total and capital spending, while after 1995 it also increases current expenditure; 3) general-interest press shows the largest coefficients, indicating stronger popularity concerns towards the newly informed voters. Keywords : Political budget cycle, local diffusion of newspapers, dynamic panel estimation. JEL codes : D72, H72, D83. 1 Ilaria Petrarca, Department of Economics, University of Verona, Vicolo Campofiore 2, 37129 Verona – Italy. Email:
[email protected]. 1 1. Introduction Is there an electoral expenditure cycle in Italian Regions? Is it a cycle in the size or in the composition of expenditure? Does the diffusion of information through newspapers affect this cyclical pattern? Which items of public spending are more influenced by the diffusion of newspapers? Has economic press a different effect than the general-interest one? These are the questions that this work addresses.