Publicizing malfeasance: When media facilitates electoral accountability in Mexico

Transcription

1 Publicizing malfeasance: When media facilitates electoral accountability in Mexico Horacio A. Larreguy John Marshall James M. Snyder Jr. April 2015 We estimate the effect of broadcast media outlets revealing information about incumbent performance on electoral accountability in Mexico. Focusing on malfeasance by municipal mayors, we study federal grants earmarked for infrastructure projects targeting the poor, and leverage two sources of plausibly exogenous variation. First, we exploit variation in the timing of the release of municipal audit reports around elections. Second, and moving beyond existing studies, we compare neighboring electoral precincts on the boundaries of media stations coverage areas to isolate the effects of an additional broadcast media station. We find that voters punish the party of malfeasant mayors, but only in precincts covered by local media stations, which emit from within the precinct s municipality. An additional local radio or television station reduces the vote share of an incumbent political party revealed to be either corrupt or neglectful of the poor by around 1 percentage point. The effect of a local media station is larger when local media stations principally serve the market inside their municipality. In contrast, while we find no evidence that non-local media stations contribute to the electoral sanctioning of malfeasant mayors, our results indicate that non-local media crowds out the sanctioning effects of local media. Our findings thus indicate that electoral accountability requires that the media market structure provides media stations with incentives to supply politically-relevant information to their audiences. JEL: D72, D78, H41, O17. Key words: corruption, elections, malfeasance, media, voter behavior. We thank Daron Acemoglu, Rakeen Mabud, Ben Olken, Jesse Shapiro, and David Stromberg, as well as participants at the Harvard Comparative Politics Workshop and MIT Political Economy Lunch for useful comments. Thanks to Andrea Ortiz and Daniel Silberwasser for excellent research assistance, and to ASF officials for providing information about the auditing process. Horacio Larreguy acknowledges financial support from the IQSS Undergraduate Research Scholars Program. All errors are our own. Department of Government, Harvard University. hlarreguy@fas.harvard.edu. Department of Government, Harvard University. jlmarsh@fas.harvard.edu. Corresponding author. Department of Government, Harvard University. jsnyder@fas.harvard.edu. 1

2 The functionaries of every government have propensities to command at will the liberty and property of their constituents. There is no safe deposit for these but with the people themselves, nor can they be safe with them without information. Where the press is free, and every man able to read, all is safe. (Thomas Jefferson to Charles Yancey, ME 14:384). 1 Introduction A large body of scholarship in political economy asserts that in large democracies: (i) elections are one of the key institutions for producing political accountability; (ii) in order for elections to function well, voters must be adequately informed; and (iii) the mass media play an essential role in informing voters. One important application of this trio is the electoral sanctioning of malfeasant behavior such as corruption and diverting funds away from the projects for which they are earmarked. This is particularly relevant in developing democracies, where corruption is prevalent (e.g. Mauro 1995) and voters are relatively uninformed (Greene 2011; Lawson and McCann 2005; McCann and Lawson 2003). This article seeks to identify when broadcast media effectively hold local government to account by facilitating the election of high-quality representatives. Although the media often cover corruption scandals and other cases of malfeasance (e.g. Puglisi and Snyder 2011), there is little solid evidence establishing (a) whether such information causes voters to punish politicians at the polling booth, and (b) what kinds of media station induce such punishment. Identifying such effects is challenging because identification requires exogenous variation in both malfeasance revelations and voter access to media coverage. Ferraz and Finan (2008) find that incumbent mayors in Brazil who are randomly revealed to be corrupt just before an election suffer more at the polls in municipalities with more AM radio stations. However, as the authors acknowledge, without exogenous variation in media access the study cannot separate the effects of AM radio from its many correlates, such as education and demand for political news. 1 Several studies also show that randomizing access to information about incumbent rep- 1 Table 2 in the Online Appendix shows that media access is significantly greater in more urban, literate, and economically developed areas in Mexico. This is likely to induce bias, given that such variables themselves have important political consequences. For example, Klasnja (2011) finds evidence that voters with greater political awareness are more likely to punish incumbents in corruption scandals in the U.S., while Weitz-Shapiro and Winters (2014) find similar results for voters with higher literacy in Brazil. 2

3 resentatives can induce voters to sanction poor performance in office (Banerjee et al. 2011; Humphreys and Weinstein 2012). 2 However, such studies cannot separate the effects of the information provided from their mode of transmissions since they lack exogenous variation in malfeasance revelations. We combine these literatures and overcome such concerns by exploiting plausibly exogenous variation in both the release of audit reports and access to media. Similarly, there is limited evidence identifying how the structure of the media market affects the electoral sanctioning of malfeasant politicians in developing contexts (Larreguy and Monteiro 2014). First, not all voters receive politically-relevant news from the media stations that that cover them, given that media stations vary in their incentives to supply politically-relevant news to segments of their audience. While Snyder and Strömberg (2010) examine the implications of media market and electoral boundary overlap for behavior in office in the U.S., how such media supply incentives affect the electoral punishment of malfeasant behavior is an outstanding question. Second, surprisingly little empirical attention has been devoted to the role of market concentration. Since media it is easier to capture media in concentrated markets (Besley and Prat 2006), voters may require multiple signals to substantially update their beliefs (Gentzkow, Shapiro and Sinkinson 2014), and new media stations may engage new segments of the market (Prat and Strömberg 2005), additional media stations providing similar news content could considerably increase voter sanctioning. Despite the potential importance of market concentration, existing research has largely focused on identifying the electoral implications of access to a new media station or media market offering distinct news content (DellaVigna and Kaplan 2007; Enikolopov, Petrova and Zhuravskaya 2011; Snyder and Strömberg 2010). In this article, we identify large electoral effects of local broadcast media stations which emit within an electoral precinct s municipality publicizing revelations of mayoral malfeasance in Mexico, particularly when media stations primarily serve local audiences. To do so, we utilize detailed geographic data and exploit two sources of plausibly exogenous variation. First, as in Ferraz and Finan (2008), we leverage variation in the timing of the release of municipal audit reports around elections. In particular, we use a difference-indifferences design to compare mayors who engage in malfeasant behavior either corruption 2 Observational studies find that corrupt politicians are more likely to be punished electorally when their corruption is covered in the news, or when political corruption is more salient (Chang, Golden and Hill 2010; Costas, Solé-Ollé and Sorribas-Navarro 2011; Eggers and Fisher 2011). However, such studies are vulnerable to the concern that the presence of media coverage is correlated with the severity of malfeasant behavior. 3

4 or diverting funds to other projects that do not benefit the intended poor recipients that is revealed in audit reports published before an election to comparable mayors whose audit reports are not published until after the election. Second, and moving beyond existing studies, we also leverage within-neighbor variation in commercial quality radio and television signals that differ across urban electoral precincts from within the same municipality due to plausibly exogenous factor such as antenna power and geographic features lying between the antenna and particular precincts. 3 Mexican voters rely largely on such local media, particularly television, to find out about malfeasance in the use of public funds (Castañeda Sabido 2011). In Mexico s federal system, a significant proportion of government spending is administered by municipal mayors. Amidst widespread concerns about corruption, the Mexican Congress passed a law institutionalizing independent audits of the use of federal funds in We focus on audit reports pertaining to the Municipal Fund for Social Infrastructure (FISM), a major social program representing about 25% of mayors annual budgets that provides mayors with funds for infrastructural projects required to benefit impoverished citizens. Audits are announced the year after the funds have been allocated, and reports reveal the share of FISM money spent in an unauthorized manner, as well as the share spent on projects not benefiting the poor. The first figure clearly represents malfeasance, and usually actual corruption. The second figure indicates malfeasance of a different sort diverting funds from their intended targets. By law, 100% of FISM projects must benefit the poor, so any money not spent on the poor represents illegal misallocation. Provided that voters care about malfeasance, we are thus able to also address the important question of what types of malfeasance matter most. Our results first demonstrate that each additional local media station substantially increases voter punishment of the party of mayors revealed to be either corrupt or neglectful of the poor. Although mayors cannot seek re-election (due to term limits), voters primarily choose between parties since mayoral elections are very low-information races, and internal selection procedures ensure that candidates types within parties are highly correlated (Langston 2003). Our point estimates imply that each additional local radio or television station reduces the vote share of the incumbent political party whose mayor was revealed 3 Specifically, we provide estimates of the intention-to-treat voters with access to media, because commercial quality coverage boundaries reduce the likelihood that voters receive a media signal but cannot preclude coverage entirely. Such issue are discussed below. Since we lack the data required to compute a first stage and the exclusion restriction might not hold, we focus on providing unbiased reduced form estimates. 4

5 to be corrupt by more than 0.7 percentage points. The effects of failing to spend funds on the poor are even larger: our point estimates imply that if the incumbent party s mayor was revealed to have misallocated funds away from the poor, each additional local radio or television station covering a given precinct reduces the party s vote share by up to 1.2 percentage points, depending on the severity of the misallocation. However, we also find that voters reward good performance in office: when the incumbent party s mayor did not engage in corruption or correctly spent the money on the poor, an audit report released before an election increases the party s vote share by almost 0.7 percentage point for each additional local media station. Differentiating media formats, we find that exposure to an additional local television station the most prevalent source of political information in Mexico has substantially larger effects on electoral sanctioning than an additional FM radio station, which has similar signal range. 4 While there are large effects for local media stations, we find no evidence that non-local media stations contribute to the electoral sanctioning of the party of malfeasant mayors. Although this could simply be because non-local media stations fail to capture audiences outside their municipality, we find that the presence of an additional non-local media station in fact crowds out the sanctioning effect of local media. Furthermore, consistent with the extent of news coverage of mayoral performance increasing with audience demand for such information, we find akin to Snyder and Strömberg (2010) that the effect of a local media station is larger when the media market of such media is principally from inside the municipality. These findings suggest that electoral accountability requires that the media market is structured to ensure that stations have incentives to supply politically-relevant information to their audiences. We demonstrate that these findings are robust to a series of sensitivity checks. First, although the timing of audit report releases and the number of media stations are well balanced across a wide variety of political, socioeconomic and demographic characteristics, we show that our findings are robust to the inclusion of flexible interactions between audit report outcomes and potential confounds of local media s effect. Second, focusing only on reports released before the election sharpens our estimates. Finally, we experiment with our definitions of malfeasance and show that corruption s effect are primarily driven by the most egregious cases, while not spending on the poor is punished more commensurately to the 4 We are unable to estimate the effect of an additional AM radio station since we lack a sufficiently large sample of neighboring precincts within the same municipality that differ in AM radio coverage. This reflects the high power of AM radio antennae, which often cover all urban areas in their municipality. 5

6 magnitude of the misallocation. Our findings contribute to the literature in a variety of ways. First, we demonstrate the particular importance of local media for local electoral accountability, rather than media in general. 5 This is an important consideration because local radio and television are often the only way in which isolated voters can learn about the performance of their incumbent politicians, but only 45%, 50% and 56% of Mexican electoral precincts are respectively not covered by a single AM radio, FM radio or television station emitting from inside their municipality.moreover, understanding the role of local media in supporting electoral accountability is particularly salient given that local media markets are shrinking in many countries. 6 trend is particularly worrying in light of the fact that our findings provide a clear rationale for malfeasant politicians to exploit the weakening economic position of local media and to seek its control (Besley and Prat 2006), by purchasing radio stations (Boas and Hidalgo 2011) or preventing defamation (Stanig forthcoming). This Second, we demonstrate that media market structure plays a key role in explaining the extent to which local media matter for electoral accountability. Our results, in a developing context, thus buttress the finding that the electoral composition of media markets has important implications for the types of political news that media stations report (Ansolabehere, Snowberg and Snyder 2006; Snyder and Strömberg 2010; Strömberg 2004), which in turn affects electoral accountability (Snyder and Strömberg 2010). In addition to comparing the relatively efficacy of more and less locally-oriented broadcast media stations, we also show that the presence of non-local media stations detracts from electoral accountability by crowding out politically-relevant news. Third, we show that voters respond to different types of malfeasance. With the exceptions of Banerjee et al. (2011) and Humphreys and Weinstein (2012), who respectively analyze the discretionary allocation of funds to slums rather than urban areas and the relative parliamentary performance of legislators, the bulk of the literature on political accountability in developing democracies has focused on corruption. Our results are most similar to Banerjee et al. (2011), who also find that voters punish politicians for diverting funds away from the 5 In contrast, Larreguy and Monteiro (2014) show the importance of regional and national media networks for national electoral accountability. 6 Over the last 15 years, Mexico has experienced a 40% decline in the share of individuals claiming to read political news in newspapers. 60% of Latinobarometer respondents claimed reading political news in newspapers 1996, compared to 36% in In the U.S., daily newspaper circulation dropped from just over 1.0 newspapers per household in 1950 to about 0.3 per household in

7 poor. However, the relatively large effects that we document which are slightly greater for revelations that politicians did not spend on the poor than for corruption revelations may reflect the fact that in Mexico such diversion is a direct violation of FISM program rules. 7 Finally, given that audits are announced after FISM funds have been allocated, the data suggest that the positive likelihood of being audited is insufficient to prevent municipal mayors from engaging in malfeasance. Our study thus complements previous research suggesting that audits can be effective at reducing corruption only if politicians know prior to spending that the reports could result in criminal prosecution (Olken 2007) or will be released before an election (Bobonis, Fuertes and Schwabe 2013). Rather, the corruption levels we observe in Mexico are broadly similar to those found in Brazil (Ferraz and Finan 2008), where the municipal audit scheme was only announced after spending had occurred. This is consistent with the dynamic optimizing behavior observed in India (Niehaus and Sukhtankar 2013), but partially contrasts with recent findings from Brazil suggesting that increasing the probability of audit reduces corruption but does not affect spending patterns (Zamboni and Litschig 2014). Our findings ultimately suggest that media-induced electoral accountability can mitigate adverse selection problems by reducing the probability that the parties of malfeasant mayors are re-elected. The article proceeds as follows. Section 3 provides a brief overview of local governments in Mexico, the FISM funds that we study, the audit of such funds, and local media in Mexico. Section 5 details our data and identification strategy. Section 6 presents our main results and robustness checks. Section 7 concludes. 2 Why the intensity of media coverage matters An influential literature has emphasized the political importance of access to a new media station or media market offering distinct content, both in terms of the focus of their news (e.g. Ansolabehere, Snowberg and Snyder 2006; Enikolopov, Petrova and Zhuravskaya 2011; Snyder and Strömberg 2010) and their ideological stance (e.g. DellaVigna and Kaplan 2007; Enikolopov, Petrova and Zhuravskaya 2011). However, despite significant theoretical interest in the role of market concentration (e.g. Besley and Prat 2006; Gentzkow and Shapiro 2006), little is known about the marginal effect of an additional media station providing similar content for electoral accountability. Combining existing arguments, we suggest that access 7 Conversely, legislators in India are free to allocate their discretionary project funds anywhere in their districts. 7

8 to more media stations providing similar content may also play an essential role in informing voters about the behavior of their politicians in office. This is of particularly relevance in light of the mixed evidence regarding whether voters punish malfeasant behavior in office (e.g. Chong et al. forthcoming, Ferraz and Finan 2008). In theory, the existence of a single news-reporting media outlet could be sufficient to support electoral accountability. Consider a situation where the incumbent is corrupt, but voters may only learn this through the news. Abstracting from demand-side biases, for one news-reporting media station to be sufficient to generate electoral sanctioning, many voters would have to receive credible information from such an outlet, sufficiently update their beliefs about their incumbent (party), and ultimately vote according to such beliefs. In practice, many voters may not consume information, or the information consumed may not cause voters to substantially update their beliefs. We argue that, once these conditions are violated, an additional news-reporting media station may substantially affect voter behavior. In their model of media capture, Besley and Prat (2006) show that political capture of media stations decreases with the number of stations in the market, and in turn increases turn over of low-quality politicians by ameliorating the adverse selection concern. Intuitively, this is because high market concentration makes it costlier for politicians to buy off many media stations that must be paid monopoly prices to resist the commercial profits associated with revealing information. Consistent with this model, Djankov et al. (2003) provide suggestive evidence that state media ownership reduces government performance in developing countries, while Boas and Hidalgo (2011) provide evidence that Brazil politicians actively seek to control local media stations once in office. Without political capture, media firms and journalists may have incentives not to reveal politically-relevant information (see e.g. Anderson and McLaren 2012; Baron 2006; Gentzkow and Shapiro 2006; Mullainathan and Shleifer 2005). For example, Gentzkow and Shapiro (2006) suggest that the media may bias its news coverage toward the priors of their consumers in order to increase their reputation (as a high-quality news outlet). However, greater competition and diversity in the media market increases the probability that competitors will expose the factual inaccuracies of a report pandering to audience priors, and thus ensures that voters receive truthful signals about political performance. 8 Although newspaper biases are correlated with the biases of their readers (Gentzkow and Shapiro 2010), there is some evidence that media market competition indeed reduces biased reporting (Gentzkow 8 Anderson and McLaren (2012) make a similar argument in a model where media owners are politically biased. 8

9 and Shapiro 2006; Puglisi and Snyder 2011), although it may come at the cost of journalistic quality (Cagé 2014). Moreover, receiving the same information from multiple sources should increase voter certainty regarding incumbent performance, especially when the information is consistent across outlets with different political biases (Gentzkow, Shapiro and Sinkinson 2014). Furthermore, the entry of a new media station may also affect media consumption, and consequently increase consumption of politically-relevant news. Even in relatively large markets, new media can expose new listeners. Supporting this claim, Prat and Strömberg (2005) show that the introduction of commercial television disproportionately attracts relatively uninformed voters, causing them to become more politically knowledgeable and increase their political participation. In particular, media stations with specific qualitiesmay be particularly effective at gaining new audiences, given that voters are willing to change their media consumption patterns in response to changes in the types of available media (Durante and Knight 2012). Similarly, the introduction of media stations with different partisan biases can attract sufficiently large audiences to alter electoral behavior (DellaVigna and Kaplan 2007; Enikolopov, Petrova and Zhuravskaya 2011). Below, we offer suggestive evidence that the availability of additional local media station increases news consumption in our context of Mexico. Finally, even if voters consume unbiased news coverage, such coverage must still be politically relevant in order to affect electoral accountability. Profit-maximizing media firms face strong incentives to tailor their programming to consumer demands, and may thus focus on catering to particular tastes (Strömberg 2004). In diverse media markets, small consumer groups may simply not be served. For example, television stations predominantly cover instate politicians even when the media market includes voters outside the state (Ansolabehere, Snowberg and Snyder 2006; Snyder and Strömberg 2010). This phenomenon may detract from electoral accountability, not only by failing to provide information about incumbent performance, but also by crowding-out media stations that do provide such content. There are thus good reasons to believe that reducing media market concentration may enhance electoral accountability, by increasing voter exposure to credible and informative signals. However, the effect of an additional media station has yet to be identified. While Ferraz and Finan (2008) provide suggestive evidence of the importance of AM radio stations, this article aims to causally identify the impact of an additional broadcast media station providing news about incumbent party malfeasance. Furthermore, to capture the role of market structure, we differentiate local and non-local media stations and examine how the 9

10 effects of media coverage change with media market composition. 3 Political accountability in Mexico Following 70 years of Institutional Revolutionary Party (PRI) hegemony, national and local politics have become relatively competitive. Elections to the Chamber of Deputies, the lower house of Mexico s national legislature, are held every three years, while the President and Senate are concurrently elected to six-year tenures. 9 State and municipal elections are instead staggered across the electoral cycle and held every two or three years. In the period of our sample, three main political parties competed for political control: the left-wing Party of the Democratic Revolution (PRD), the populist PRI, and the right-wing National Action Party (PAN). 10 Competition in most parts of the country was generally between only two of these parties, with the PRI performing best in rural areas and the PAN and PRD performing best in urban areas (Larreguy, Marshall and Querubín forthcoming). 3.1 Municipality audits In Mexico s federal system, states and municipalities exercise significant control over local policy. In 2010, Mexico s 31 states contained 2,435 municipalities, varying in population from 102 to 1.8 million with a mean of 46,134. Following major fiscal decentralization reforms in the 1990s, the average municipality annual budget has been around nine million U.S. dollars, which constitutes 20% of total government spending. 11 Municipal governments are led by mayors, who are responsible for delivering basic public services and managing local infrastructure. Mayors are normally elected every three years, although they serve four-year terms in some states, and could not stand for re-election In the Chamber of Deputies, 300 members are elected via plurality rule from singlemember districts and 200 members are elected via proportional representation. The Senate comprises 128 Senators, where three are allocated from each state (including the Federal District) where the largest party receives two Senators and the second largest receives one Senator, and a further 32 allocated according to the national vote share. 10 The PRD s candidate in the 2006 and 2012 presidential elections Andrés Manuel López Obrador left the PRD to form a new party, the National Regeneration Movement (MORENA). 11 Education and health were decentralized between 1992 and 1996 and the decentralization of infrastructure projects followed in 1997 (Wellenstein, Núñez and Andrés 2006). 12 Re-election will become possible for those running starting in

11 An important component of a mayor s budget is the Municipal Fund for Social Infrastructure (FISM). On average, this represents 24% of a municipality s total resources. FISM funds, which are allocated to municipalities according to the Fiscal Coordination Law (LCF) passed in 1997, are direct federal transfers provided exclusively for the funding of public works, basic social actions, and investments that directly benefit the socially disadvantaged population living in extreme poverty. Spending may be allocated in any of the following categories: potable water, sewage, drainage and latrines, municipal urbanization, electrification or rural and poor suburban areas, basic health infrastructure, basic education infrastructure, improvement of housing, rural roads, and rural productive infrastructure. The use of FISM funds is subject to independent audits by Mexico s Federal Auditor s Office (ASF). The ASF, which was established in 1999 in response to widespread concerns regarding the mismanagement of public resources, is an independent body with constitutionally-enshrined powers to audit the use of federal funds by the federal, state and municipal governments. In each year since 2000, the ASF audits FISM spending in multiple municipalities per state. Audits focus on the spending and management of FISM resources in the prior fiscal year, and the list of municipalities to be audited in a given year is announced the year after the spending occurred. Between 2007 and 2012, 14% of Mexican municipalities were audited at least once, with around 120 municipalities being audited each year. Although municipalities are not randomly chosen to be audited, the timing of an audit is essentially random. The appendix to the ASF s summary report makes clear that only the following criteria are taken into account: the financial importance of FISM funds to the municipality, relative to the municipal budget; historical performance indicators and institutional weaknesses that raise the likelihood of misallocation; whether FISM spending has recently been audited; whether other federal audits are occurring simultaneously; and where a specific mandate exists to examine a particular municipality. 13 Direct communication with the ASF confirmed these criteria, and clarified that an audit should not have occurred within the last two years, and that for logistical reasons they often simultaneously audit neighboring municipalities. 14 Crucially, given that our identification strategy exploits the timing 13 This information is formally stated on page 240 of their 2014 summary report, Informe del Resultado de la Fiscalización Superior de la Cuenta Pública 2012, available here. Federal auditors may also audit Funds for the Strengthening of Municipalities and Federal Demarcations of the Federal District (FORTAMUNDF) funds allocated in proportion to the number of citizens and intended to strengthen municipal social spending, or Subsidy for Security in Municipalities (SUBSEMUN) funds allocated to support public security. 14 Based on a personal interview with the Licentiate Jaime Alvarez Hernández, General Director of Research and Evaluation of the Special Audit of Federal Spending, in July 2012, 11

12 of audits, our correspondence with the ASF also confirmed that the selection of municipalities for audit does not depend upon the electoral cycle or the government s political identity. Ensuring that this claim applies in practice, our balance tests below confirm that the timing and content of audit reports are uncorrelated with a wide variety of political, demographic, and socioeconomic indicators. Independent ASF auditors check that officials abide by the rules established for the management of FISM resources (e.g., procurement rules, accounting procedures), that the status of the funded projects is in accordance with the books, and that funds are given the use they were intended for. Reports break down the use of FISM funds across multiple dimensions; an example report is provided in the Online Appendix. Most importantly, reports state the percentage of FISM funds spent on projects not benefiting the poor and the percentage of funds used for unauthorized spending. Spending that does not benefit the poor ranges from the diversion of resources to support agricultural production in areas without poverty to paving the streets of relatively rich urban areas. We interpret unauthorized spending, which includes the diversion of resources for personal expenses of the mayor or electoral campaigning and funds that are unaccounted for, as corruption. 15 Audit reports are publicly released two years after the spending actually occurred, when they are presented in Congress by the last working day of February each year and made publicly available online at the ASF s website. 16 Relative to previous social programs, FISM funding has been comparatively successful at targeting resources at the poor (Wellenstein, Núñez and Andrés 2006). However, funds are often misallocated. Unlike previous studies focusing on corruption in more general programs (e.g. Ferraz and Finan 2008; Bobonis, Fuertes and Schwabe 2013), the specific targeting of FISM funds allows us to examine the electoral response by voters to both corruption and the misuse of funds intended to serve a disadvantaged population. The ASF can impose a variety of punishments on malfeasant public officials. In particular, the ASF can inflict fines on the municipality to recover FISM funds, recommend that the Ministry of Public Function removes, suspends or imposes economic sanctions on officials, or file (or recommend) a criminal case against culpable individuals. In practice, and formal correspondence with the ASF. 15 This definition resembles Ferraz and Finan (2008) in that we focus on violations that include procurement fraud, diversion and over-invoicing, but differs in that we quantify the relative importance of such corruption. Rather than the percentage of unauthorized spending, Ferraz and Finan (2008) count the number of corruption violations. 16 Guía para el ciudadano. Qué es y qué hace la Auditoría Superior de la Federación? 12

13 these punishments have not been used regularly: between December 2006 and July 2012, the Ministry of Public Function only recovered two million U.S. dollars, sanctioned 9,000 public employees for serious misdemeanors, and incarcerated one hundred officials. 17 The largest punishment may be electoral. Since Mexican mayors cannot stand for reelection, any electoral penalty hits the party of a malfeasant mayor. This feature differentiates our study from many preceding studies (e.g. Banerjee et al. 2011; Ferraz and Finan 2008; Humphreys and Weinstein 2012). However, there are good reasons to believe that a mayor s political party may be punished by voters at the next election. First, although some voters are aware of particular candidates, Mexico s strong party system ensures that party labels play a key role in voting decisions. Previous studies show that voters are poorly informed about local politics, and that voters are willing to punish the party s of local mayors for their actions in office (e.g. Chong et al. forthcoming). Second, the top-down internal structure of Mexican parties at the state level ensures that within-party candidate choice is highly correlated at the local level (Langston 2003). 3.2 Local broadcast media As in many developing countries, radio and television stations are the principal source of news in Mexico. Conditional on providing news, both radio and television stations provide around 2 hours of news coverage a day. 18 While a few television stations are devoted to national news, the focus of radio stations and most television stations is predominantly local. In fact, while the majority of entertainment content is common across media stations within Mexico s large media networks, news programming is typically local. Such content sharing among major radio networks such as Radiorama, ACIR, Radiocima, Multimedios Radio and MVS Radio, and Mexico s two main television networks, Televisa and TV Azteca, allows Mexico s many small media stations to support themselves through local advertising revenues including government advertising expenditures. Voters are generally unaware of mayoral responsibilities and the use of public funds (Chong et al. forthcoming), as well as the institutions that are responsible for auditing the use of public resources (Castañeda Sabido 2011). Most public spending is invisible and inaccessible to most voters. A study by Castañeda Sabido (2011) indicates that only 33.6 % of surveyed individuals think that municipal governments are transparent about the use 17 El Universal, A la cárcel, solamente 100 ex servidores, 29th May 2014, link. 18 These figures are based on IFE monitoring of a non-random sample of 200 radio and television stations providing news coverage during the 2012 Mexican Federal election. 13

14 of public resources. 19 Moreover, only 25% of surveyed individuals can mention a public institution in charge of auditing the use of public funds, and only 1.4% of those individuals mention the ASF as the main institution responsible for that task. Voters learn about public spending primarily through media coverage. Figures from the 2009 Latinobarometer indicate that 83% of respondents gather political information from television, 41% gather political information from radio, 30% gather political information from newspapers, and 41% gather political information from family, friends and colleagues (many of whom, of course, gather their information from television, radio and newspapers). 20 Internet is not widespread: according to the 2010 Census, only 24% of households in the average electoral precinct have internet access. Additionally, according to Castañeda Sabido (2011), 83% of individuals report that they receive information about malfeasance in the management of public resources through media, and 61% regard such information as reliable. We thus expect that television may be the most the important media source for electoral accountability. Furthermore, the likelihood that a voter follows the news increases with the availability of local media. Using detailed data on media consumption from the 2009 CIDE-CSES Survey, the Online Appendix demonstrates a strong positive correlation between access to local media stations (defined in detail below) and consumption in a predominantly urban sample. In particular, an additional local radio and television station respectively increases the probability that an individual regularly watches a news program by 0.4 and 1.4 percentages points, as well as increasing the total number of news programs regularly watched by and respectively. In total, 80% of respondents listed at least one television program, and 30% listed one radio program. Conversely, we find no evidence that the number of non-local media stations, which are less likely to provide local news coverage, are associated with news consumption. The release of municipal audit report results each February is a major annual media event, especially for television stations which extensively cover audit report outcomes. As in many other countries (see Pande 2011), revelations about political malfeasance are widely 19 In principle, local governments are required to inform the public about the arrival of FISM funds. However, only about 50% comply with this requirement. Moreover, among those that do comply, the main communication channels used are newspapers and the internet i.e., two types of mass media. Furthermore, media relies extensively on the ASF audit reports since governments are extremely reluctant to release information about their expenses to the public (Lavielle, Pirker and Serdán, 2006). 20 These are the only four responses to an open-ended question that received a nonnegligible number of mentions. 14

15 covered, and as indicated by the many news stories we found from later in the year continue to remain salient news for many months. News reports generally cover mayors within the local vicinity, and typically focus on cases of corruption and mayors not spending FISM funds on projects targeting the poor. 21 Most reports accurately cite the proportions of unauthorized spending and spending on projects not targeted at the poor, and many dig deeper to describe the nature of the malfeasance. There are many such examples available online. 22 For example, in 2013 BBM radio station reported that Oaxaca de Juarez s mayor had created a fake union to collect payments, presided over many public works contracts without offering open tender, diverted payments for advertising and consulting fees, and failed to provide details of considerable quantities of spending. 23 While this particular case represents one of the most corrupt mayors, such behavior was not uncommon: many media reports pointed to mayors diverting payments, using FISM funds for personal and family expenses and manipulating tender processes. Failures to spend FISM funds on the poor were just as common in media reports. In many cases, public works projects were undertaken in urban and affluent parts of the city. In others, the alleged project never materialized despite being paid for, or was diverted for alternative uses such as supporting local candidates from the incumbent s party. To more systematically demonstrate the substantial coverage of the audit report releases, Figures 1a and 1b show spikes in Google searches for the ASF and FISM around February and March of each year. We now turn to our data, and to the empirical strategy we use to identify the effects of the release of audit reports in electoral precincts that differ in the number of local media outlets they are covered by. 4 Data This section describes our main sources of data: incumbent electoral performance at the electoral precinct level; municipal audit reports released just before and just after an election; and precinct-level radio and television coverage. 21 Little mention was made of other features of the reports such as the the degree of participation of the community in the allocation of funds or the share of FISM funds that were spent. 22 For example, see: BBM Noticias, ASF: desvió Ugartchechea mdp, October 21st 2013, here; El Informador, Hallan irregularidades en gasto tapatío contra pobreza, February 28th 2013, here; Revolución Tres Punto Cero, En 2012, se desviaron a campañas 29 millones de pesos para combate a la pobreza en Tabasco, March 6th 2014, here. 23 BBM Noticias, ASF: desvió Ugartchechea mdp, October 21st 2013, here. 15

16 4.1 Mayoral election outcomes Mexico s municipalities are divided into approximately 67,000 electoral precincts. Using data from the Federal Electoral Institute (IFE) and State Electoral Institutes, we collected electoral returns for every available precinct in each municipal election between 2004 and We thus accumulated up to four election results per electoral precinct, which enabled us to identify the municipal incumbent and incumbent s past vote share in all the elections in our period of analysis, We focus on two main outcomes: the change in incumbent party s vote share at the precinct level, and whether the incumbent party was re-elected at the municipal level. The former measure quantifies the extent of precinct-level voter sanctioning, while the latter captures the municipality-level implications for the identity of the office-holder. When exploiting fine-grained variation in media coverage across precincts, our analysis solely focuses on changes in the incumbent vote share. We define the vote share by the proportion of voters that turned out. 25 The average incumbent party in our sample received 48% of votes in the average electoral precinct, which represents a 4.7 percentage point decline in their vote share. Since Mexican mayors cannot stand for re-election in our sample, we focus on the party of the incumbent mayor. However, municipal politics often entail the formation of local coalitions between political parties, and this can change across elections. For example, in 2009 the incumbent mayor of the municipality of Colima represented a two-party coalition containing the PRI and the Green Party (PVEM). However, the 2009 election saw six groups stand for election: the PT, PVEM and PC all stood separately against three coalitions, PAN- ADC, PRI-PANAL and PRD-PSD.To classify such cases where the incumbent coalition split at the next election, we determined the party affiliation of the mayor by researching their identity and party ties. 4.2 Audit reports Since audit reports are released with a two year lag, reports released in the February of a municipal election year generally refer to the first year the incumbent mayor was in office By ending our sample in 2012, our sample does not feature any mayors that can seek re-election. 25 We obtain similar results when measuring vote share as a proportion of registered voters. 26 In Coahuila, where mayors are elected to four-year terms, the report refers to the second year of their term. 16

17 Since municipal elections take place later in the calendar year, we define a pre-election audit report release by whether an audit was released in February of an election year. 27 Typically, the report is released 4 months before the election. Our control group will be mayors in municipalities where the audit was released in February the year following the election. In such cases, the audit report generally pertains to their second year in office. The results of audit reports, which quantify the use of FISM funds, are publicly available on the ASF s website. We extracted the proportion of funds spent in an unauthorized manner and the proportion of funds not spent on projects benefiting the poor from every available report between 2007 and 2012.This yielded a total of 742 municipal audits, which were relatively evenly spread across years and covered 351 unique municipalities. Of these, 470 reports from 321 different municipalities were released in an election year or the year after. We henceforth restrict attention to this subsample of audits, which are shaded by their levels of malfeasance in Figure 2. [Figure 2 about here.] We operationalize malfeasance using indicators to capture severity. For corruption, we define indicators for precincts with mayors in the third and fourth quartiles of the distribution of unauthorized FISM spending. Unauthorized spending in the third quartile ranges from 0.6% to 11.2% of available FISM funds with a mean of 5.1%, while spending in the fourth quartile exceeds 11.2% with a mean of 30.7%. For neglectful spending, we similarly define indicators for mayors in the third and fourth quartiles with respect to FISM funds not allocated to spending on the poor. Not spending on the poor in the third quartile contains any positive value between up to 12.9% of available FISM funds with a mean of 5.7%, while spending in the fourth quartile ranges exceed 12.9% with a mean of 38.0%. Since around 50% of precincts did not experience corruption or not spending on the poor, the 25th percentile of each distribution is 0; hence we do not use an indicator for the second quartile. We employ binary performance metrics which are also more flexible than linear measures identifying more egregious cases of bad performance since standard theoretical models suggest that voter sanctioning involves cut-off rules (e.g. Barro 1973; Ferejohn 1986). Furthermore, our examination of media reports indicates that only relatively serious cases are widely reported. Nevertheless, our robustness checks show similar results when using a continuous measure 27 Although states differ in the month in which they hold elections, only the state of Baja California Sur holds elections before mid-february. We adjust for Baja California Sur accordingly. 17

18 where we instead allow sanctioning to be a linear function of revealed performance, and also when examining cutoffs for different levels of malfeasance. 4.3 Radio and television coverage In addition to our fine-grained electoral data, a key feature of this study is the detail of our media coverage data. Following a major media reform in 2007 (see Serra 2012), the IFE required that every AM and FM radio station and every television station in the country provide signal coverage data. 28 Specifically, for each media station we are able to define the municipality from where it broadcasts, as well as the commercial quality coverage range of its signal. 29 Inside a station s coverage area the signal is of high quality, so precincts inside the area have good access to the station s broadcasts. Precincts outside the coverage area experience increasingly poor coverage as the distance from the boundary increases. See Larreguy, Marshall and Snyder Jr. (2014) for further details of the coverage data. Figures 3-5 map the location and coverage of each of the 852 AM, 1097 FM and 1255 television stations. Although media coverage is extensive, with most precincts receiving at least one media signal and most municipalities containing at least one media station, there is considerable variation in the number of media stations covering each precinct that emit from within the precinct s own municipality. 30 The figures also clearly indicate that the commercial quality coverage range of AM radio is substantially greater than for FM and television. However, as discussed in detail below, we restrict attention to more urban precincts that primarily differ in terms of FM and television signals. [Figures 3, 4 and 5 about here.] Our principal measure of local media coverage is the total number of AM, FM or television stations covering a given electoral precinct that broadcast from within the precinct s municipality. To avoid counting signals that barely cover a given precinct, we use (urban) 28 For only a small number of FM and television stations did the same station broadcast from multiple municipalities. No electoral precincts received the same signal from multiple antennae. 29 The IFE defines the boundary of the coverage area using a 60 dbµ threshold for signal strength. This is the threshold commonly used to determine a radio station s audience and sell advertising space commercially in the U.S., where it is recognized as the area in which a reliable signal can be received using an ordinary radio receiver and antenna (NTIA link). 30 Since the number of radio and television stations has remained constant between 2003 and 2010, we cannot exploit temporal variation in media coverage. 18

19 block and (rural) locality-level population data from the 2010 Census to define a precinct as covered by a given media station only if at least 20% of its population lies in side the commercial quality coverage boundary. The average precinct is covered by 4.4, 5.8 and 2.5 local AM, FM and television stations respectively, while the total number of local media stations covering a precinct ranges from 0 to 44. Given these precinct totals are highly correlated across media types, simply adding the total together yields similar results to examining each type of media separately. 31 To compare the effects of local media to non-local media, we also consider the number of media stations that cover a precinct but transmit from outside their municipality. The average precinct receives roughly as many FM and television signals from inside their municipality as outside, although the greater signal range of AM stations means that precincts are typically covered by three times as many AM stations emitting from outside their municipality. 5 Empirical strategy Our goal is to identify the effect of local media coverage of municipal audits on the incumbent party s electoral performance. To achieve this, we exploit exogenous variation in both the timing of audit report releases around elections and access to local media. In particular, we combine the difference-in-differences design of Ferraz and Finan (2008) with plausibly exogenous variation in the number of local media stations covering neighboring electoral precincts. 5.1 Identifying the effects of audit reports The difference-in-differences (DD) component of our design rests upon exogenous variation in the timing of audit report releases. To first identify the effects of audits we compare municipalities where an audit report was released just before a municipal election to a control group of municipalities where the audit was released after a municipal election. We then move beyond this first difference by also comparing municipalities where the mayor is corrupt or neglectful. The DD sample contains 47,938 precinct-election observations. Conditional on our sample of municipalities that have been audited at least once, the identifying assumption required to estimate the effects of audits released just before an 31 This procedure yielded a Cronbach s alpha of The minimum pairwise correlation between the variables is

20 election is that the timing of the releases is effectively random. As discussed in detail above, the independent ASF s procedure for determining which municipalities will be audited in a given year is apolitical: the timing of elections does not feature in their selection rule. The summary statistics in Table 1 empirically support this identifying assumption. Consistent with the ASF s claim that selection is independent of electoral considerations, differencein-means tests confirm that differences between electoral precincts in municipalities where an audit was released in the year before an election and precincts where an audit was released the following year across 49 political, demographic, media, and economic characteristics are consistent with chance. Specifically, we find only 1 statistically significant difference (which is only statistically significant at the 10% level). The final 26 variables are from the precinct-level Census data from 2010, and are described in detail in the Online Appendix. [Table 1 about here.] A second potential concern is that FISM spending decisions the content of audit reports might differ across reports released before and after elections. This could reflect differences in the behavior of either auditors or mayors. First, even though the timing of audits is effectively random, auditors could still be more lenient or more meticulous in the knowledge that a report will be released in an election year. Second, mayors anticipating the release of an audit report in an election year may spend more appropriately (Bobonis, Fuertes and Schwabe 2013). Alternatively, the relative inexperience of first-year mayors about whom audit reports are released before an election may induce them to allocate their funds differently from second-year mayors (Chattopadhyay and Duflo 2004). [Figure 6 about here.] However, there is no empirical support for such concerns. Table 1 shows that there is no systematic correlation between pre-election audits release and either the proportion of unauthorized spending or the proportion not spent on the poor. This holds regardless of whether we measure such spending on average or in terms of being in the third or fourth quartile of either distribution. Furthermore, Figure 6 compares the report outcome distributions across audit reports released just before and just after an election. 32 The distributions of unauthorized spending and spending not on the poor are very similar, and in neither 32 The graphs are very similar if we compare audits from election years to all non-election years (i.e. not just including audits released in the year after a municipal election). 20

21 case does a Kolmogorov-Smirnov test reject equality of distribution. 33 Combined with our randomization check, this strongly suggests that the audits results released in election years are typical of normal FISM spending. Given that the timing of audit report releases, and their content, is effectively random, we estimate the following simple DD specification to identify the effect of revealing a mayor to be corrupt or neglectful before an election: Y p,m,t = β 1 audit m,t + β 2 outcome Q3 m,t + β 3 outcome Q4 m,t + β 4 ( audit m,t outcome Q3 m,t ) +β 5 ( audit m,t outcome Q4 m,t ) + ε p,m,t, (1) where Y p,m,t is the incumbent party s vote share in precinct p in municipality m in year t (or whether the incumbent party won the election in municipality m), audit m,t is an indicator for an audit being released in the year before the election, and outcome Q3 m,t and outcome Q4 m,t are indicators for municipalities in the third and fourth quartiles of the distributions of corrupt or neglectful mayors (regardless of whether the audit was released before or after the election). Since precincts differ in size, we weight each observation by the number of registered voters. 34 Throughout, we cluster by municipal election to account for spatial correlation between precincts receiving the same audit report. Our main coefficients of interest are β 4 and β 5, which identify the effect of an audit conditional upon it revealing corruption, or that the mayor did not as legally required spend FISM money on the poor. We are also interested in β 1, which identifies the effect of an audit conditional upon it revealing no malfeasance. 5.2 Identifying the effects of local media stations revealing audit reports To examine how media affects whether voters punish malfeasant behavior, Ferraz and Finan (2008) further interact audit m,t outcome m,t with the number of AM stations located in a municipality. If the number of AM stations were effectively randomly assigned, then this would estimate the average effect of an audit report being released for each additional local 33 Collapsing to the municipality-audit level (with 470 observations) to avoid duplication across precincts, the p values of the corruption and not spending on poor distributions are respectively 0.39 and Given that electoral precincts were all designed to contain up to 1,500 voters, precinct numbers remain relatively similar, and the unweighted results yield very similar estimates. 21

22 media station. 35 However, in general, media stations are not randomly assigned across municipalities. As we show in the Online Appendix, the number of local media stations received by an electoral precinct in our Mexican sample is significantly correlated with almost every Census characteristic in Table 1. Local media is significantly more prevalent in more highly developed, urban and politically uncompetitive precincts. These correlations may upwardly bias our estimates of local media s effects if, for example, the better educated and informed citizens in such precincts are more willing or able to sanction incumbent mayors revealed to be malfeasant (e.g. Alt, Lassen and Marshall 2014; Weitz-Shapiro and Winters 2014). 36 Controlling for the available observables does not fully address the major concern that local media is actually picking up the effect of correlated local characteristics. To identify the effects of local media coverage, we compare neighboring electoral precincts from within a given municipality that differ in the total number of local AM radio, FM radio and television stations that they are covered by (for similar designs, see Ansolabehere, Snowberg and Snyder 2006; Enikolopov, Petrova and Zhuravskaya 2011; Fergusson 2014; Snyder and Strömberg 2010). A media station is local to a precinct if it emits from within the same municipality. As explained above, we define a precinct as covered by a given media station if at least 20% of its population lie inside the commercial quality boundary. Since broadcast signals decay gradually rather than abruptly, and whether any given household receives a signal may depend upon the quality of their receiver, discrete differences in commercial quality signal coverage do not imply that neighboring precincts differ strictly between receiving or not receiving a station s signal. Rather, our design estimates the intent to treat effect of differences in the proportion of an electoral precinct that can receive commercial quality local media. 37 Our estimates will thus understate the effect of an terminal drop in coverage. 35 Furthermore, unlike our precinct-level data, this strategy rests upon betweenmunicipality differences in media coverage. 36 In theory, these correlations could also downwardly bias our estimates if such precincts contain voters with stronger prior beliefs about their incumbent s quality (Zaller 1992). 37 Ideally, we could also identify the electoral effect of receiving or consuming an additional media station using instrumental variable techniques. To estimate the relevant first stage, we would need to measure either the proportion of voters in each precinct that can access all media stations or the proportion of voters that actually listen to each radio stations or watch each television station. Unfortunately, such detailed individual-level data is not available. Survey datasets typically cover only 1-2% of all electoral precincts and never ask specifically about which radio or television stations voters have access to or actually consume. Although the Comparative Study of Electoral Systems and Mexican Panel surveys did ask whether respondents listen to the radio or television, the surveys are predominantly urban and cover 22

23 Similarly, any spillovers (e.g. arising from driving to work across radio coverage boundaries) would further attenuate our estimates toward zero. Our identifying assumption is that neighboring precincts differ only in their local media coverage. Restricting attention to within-neighbor variation removes a wide variety of potential confounds. Ideally, otherwise similar precincts near the commercial quality coverage boundary only vary due to exogenous and fixed signal impediments or facilitators such as large physical objects, terrain, and salt water that affect ground conductivity (in the case of AM long waves) and line of sight (in the case of FM and television waves). As noted above, the coverage maps provided by the IFE account for such obstacles and facilitators, as well as the frequency and power of transmitters signals. While the conductivity of AM signals is sensitive to variable weather conditions and the night-time ionosphere, FM radio and television coverage is relatively constant because such waves travel by line of sight. Furthermore, focusing on within-municipality neighbors removes municipal political differences and ensures that neighboring precincts vote on the same incumbent. Nevertheless, strategic sorting represents an important concern. Our estimates would be biased if certain types of voters choose to live in areas with better local media coverage or media stations strategically choose the strength of their signal to exclude certain types of voters. However, such sorting is unlikely. First, if voters were migrating according to media availability, they would likely choose a location close to the antennae, rather than near the commercial quality coverage boundary, in order to guarantee high-quality signal coverage. Second, media stations lack the technology to precisely target certain types of voters: beyond the fact that excluding voters is challenging when signals are not discontinuous, the antennae strengths that media stations purchase are highly discrete. 38 To maximize the plausibility of our identification strategy, we focus on relatively urban precincts. Specifically, our sample only contain precincts with at most an area of 10 km 2. Between such neighbors, strategic sorting is particularly unlikely because media stations only 1-2% of electoral precincts. The Latinobarometer, which also asks basic questions about media consumption, does not provide precinct-level identifiers for its respondents. Even if such surveys had greater coverage, none of the surveys could identify the number or identity of the media available to voters such measures would be necessary to compute the relevant first stage. Furthermore, since voters are likely to discuss the news that they receive with their friends and family, the exclusion restriction requiring that a commercial quality coverage signal only affects electoral outcomes through either access or especially consumption is hard to sustain. 38 The power output in watts for the AM, FM and television stations in our sample are almost exclusively round thousands and divisible by 5. 23

24 cannot plausibly choose technologies to separate markets. Given the substantial reach of AM stations, a second key advantage of this design is that more urban areas almost exclusively differ with respect to FM radio and television coverage. Removing the most volatile media signal maximizes the accuracy of our coverage measures. Moreover, this area restriction prevents rural-urban comparisons, which could be problematic because distance from urban areas may be correlated with other politically-relevant characteristics and media signals decay at different rates in rural areas. Supporting the validity of this approach, our balance tests show that only 2 out of our 36 precinct-level balancing variables are significantly correlated with local media (see below). 39 Figure 7 illustrates our empirical strategy graphically. Electoral precincts 1571 and 1583 in the municipality of Villa de Tututepec de Melchor Ocampo are neighbors, but differ because only precinct 1583 is covered by a television station emitting from within the municipality. Since some neighbors differ by more than one local media station, 40 we include neighbor group fixed effects to ensure that our estimates are not confounded by differences in the types of places where neighbors differ by one as opposed to two (or more) local media stations. Operationally, we define a treated precinct as one which differs from at least one neighboring precinct in terms of the number of local media stations that it receives. For each such precinct, we then collect all possible neighboring control precincts that receive a different number of local media stations. This yielded a sample containing 17,312 observations, where neighbors typically differ by one or two local media stations. Given AM radio typically travels substantial distances, focusing on relatively urban neighbors typically identifies off differences in access to FM radio and television stations. [Figure 7 about here.] To combine variation in the timing of audit and the number of media stations covering a given electoral precinct, we estimate the following triple-difference (DDD) specification using 39 Relative to Table 1, we removed municipality level variables and, naturally, local media % of neighbor pairs differ by more than one local media station. Therefore, we cannot simply compare treated and control units because the difference in the number of media stations between the two groups (or the treatment intensity) is not constant. 24

25 our neighboring precincts sample: Y p,k,m,t = β 1 audit m,t + β 2 outcome m,t + β 3 media ( ) p,m ( ) +β 4 audit m,t outcome Q3 m,t + β 5 audit m,t outcome Q4 m,t +β 6 ( audit m,t media p,m ) + β 7 ( audit m,t outcome Q3 m,t media p,m ) +β 8 ( audit m,t outcome Q4 m,t media p,m ) + ξ k + ε p,k,m,t, (2) where media p,m is the total number of local media stations. Including a neighbor group fixed effect ξ k ensures that our DDD estimates identify only off within-neighbor variation in media coverage (given we restricted attention to neighbors within a given municipality). In addition to weighting by the number of registered voters in the precinct, we further divide this weight by the number of control units per comparison to give each neighbor comparison equal weight. Using a similar design, we also examine the effect of the total number of non-local media stations, i.e. those broadcasting from outside the municipality. The coefficients β 6, β 7 and β 8 respectively identify the electoral effect of an additional media station for a precinct in a municipality where the audit report reveals the incumbent party not to be malfeasant, to be in the third quartile of malfeasance, and to be in the fourth quartile of malfeasance. The coefficients β 4 and β 5 estimate the effect of an audit report in the absence of media. These coefficients thus capture how media coverage supports electoral accountability both in terms of punishing malfeasant incumbent parties and rewarding incumbents that correctly allocate federal transfers. By exploiting within-neighbor variation, we can plausibly identify the average effect of an additional media station. Unfortunately, however, the demanding structure of our identification strategy means that we lack the power to non-parametrically estimate media s effect The ideal non-parametric approach would be to allow media s effect to vary for number of media stations. However, by requiring 4 coefficients for each of the 40 levels in our data, we quickly lose power and rely on cells with very little support. A second best approach could involve using multiple categories (e.g. at least ten, twenty, thirty media stations etc.) or quantiles. However, since 90% of neighbors only differ by one or two local media stations, using broad categories eliminates most of this variation because most neighbor comparison will not cross the threshold defining media intensity categories. Rather than taking the average marginal effect, this approach would estimate the marginal effect around a given threshold, e.g. among neighbors with 9 and 10 and 9 to 11 media stations. By ignoring within-neighbor variation away from the threshold, this simply yields an under-powered average effect for an additional media station for a somewhat arbitrary threshold. 25

26 [Table 2 about here.] To assess the plausibility of the design, we test whether local media predicts pre-treatment covariates using specifications akin to equation (2). Despite our restriction to relatively urban areas and our arguments above, a key concern is that precincts receiving more media are likely to be closer to the municipal center, where antennas are typically located, and thus differ in politically salient ways. To examine this possibility, Table 2 tests for balance over distance to the centroid of the municipal head (from both a precinct s border and its centroid), area, the total population and number of registered voters, and population density (all as natural logarithms). The results are consistent with local media s random assignment between neighbors: for none of these variables we register a statistically significant difference, while the variation in coefficients directions is consistent with chance rather than access to local media correlating with distance from relatively large urban developments. Crucially for distinguishing the effects of local and non-local media, we also find no relationship between the number of local and non-local media stations. Furthermore, we find no evidence that the number of local media stations covering a precinct predicts standard development measures such as education, basic housing needs, or owning more luxurious items like computers, washing machines or cell phones. Similarly, we find no correlation between the presence of local media and prior political behavior: an additional media station is insignificantly and negligibly associated with incumbent electoral performance, local political competition (proxied by the effective number of political parties) and electoral turnout. Together, our wide range of balance tests thus offer substantial support for our identification strategy. 6 Results We first briefly examine whether audits revealing the incumbent party s mayor to be corrupt or neglectful before an election reduces the party s vote share and probability of retaining office. However, our main contribution is to identify the interactive effect of local media and the pre-election release of incumbent performance information in holding the incumbent party to account. Our results demonstrate that an additional local media station significantly increases the electoral punishment that the party of a corrupt or neglectful mayor faces. Such differences in access to local media may explain why the average effects of audit report releases are noisily estimated. Reinforcing the importance of local media, we also show that non-local media do not enhance electoral accountability and crowd out the effects of local 26

27 media. Finally, we show that local media is most effective when the station s market is predominantly based within the municipality. 6.1 Audits and electoral accountability Table 3 presents our DD estimates of the average effect of an audit revealing a mayor to be corrupt or neglectful of the poor on the mayor s electoral prospects. The outcome in columns (1) and (2) is the change in the incumbent party s vote share at the precinct level, while the outcome in columns (3) and (4) is whether the incumbent party was re-elected in the municipality. [Table 3 about here.] The results suggest that an audit report released may have important electoral implications. Although the point estimates are relatively large, they are imprecise and never statistically significant. Column (1) suggests that revealing the incumbent party s mayor to be in the most corrupt quartile before the election, on average, reduces the party s vote share by 4.5 percentage points. Although the effect is not statistically significant, the magnitude represents 9% of the average incumbent s initial vote share. Column (2) suggests that revealing the incumbent party s mayor to have been neglectful similarly reduces their vote share: the vote share of mayors in the third quartile declines by 2.6 percentage points, while mayors in the fourth quartile lose a further 4.2 percentage points. In both cases, the audit coefficient in the first row which captures the baseline category of essentially zero or negligible malfeasance suggests that the parties of mayors whose reputations are not negatively affected by the audits may increase slightly their vote share, especially when they actually spent the FISM funds on its intended poor recipients. Looking at the probability of re-election similarly suggests that voters may severely punish mayoral malfeasance. Measured at the municipal level, the change in incumbent vote share maps to large but very imprecise reductions in the probability of being re-elected. Column (3) finds that revealing a mayor as one of the most corrupt reduces their re-election probability by 29 percentage points, although this is not quite statistically significant. 42 Column (4) shows that the publication of an audit report showing that a mayor did not spend FISM federal transfers on the poor is 17 percentage points less likely to be re-elected. For both 42 The particular relative lack of precision for the incumbent win probability reflects the fact that we have 481 audited municipalities, of which only 51 had mayors that were revealed to be corrupt before the election. 27

28 audit outcomes, the effect is much larger for mayors in the fourth quartile relative to the third, where the estimate is surprisingly positive. The electoral sanctioning suggested by these results is broadly similar in magnitude to that found by Ferraz and Finan (2008) in Brazil, although we measure corruption in terms of stolen funds rather than the number of corrupt spending violations. However, our results also suggest that incorrectly spending money earmarked for the poor could also evoke sanctioning of similar magnitude to corruption. 43 However, our DD estimates are very noisy. A plausible explanation for the lack of precision is that audit reports only affect voter behavior when the information is effectively conveyed by local media stations. 6.2 Broadcast media audit report coverage We now address the central question of this article: is the party of a malfeasant mayor more likely to be sanctioned by voters who live in areas covered by media stations that publicize audit reports revealing the mayor s behavior in office? Combining our DD and the withinneighbor design, we first estimate the effects of local media stations those emitting from the municipality that the electoral precinct belongs to before turning to non-local media stations. Since mayoral corruption and neglect are primarily important local issues, we expect to find that local media is more effective at facilitating electoral accountability Importance of local media Table 4 provides our estimates for the sanctioning effect of an additional media station emitting from the precinct s own municipality. Since we now focus on precinct-level variation in media coverage, our analysis focuses on the change in the incumbent s vote share at the precinct level. Columns (1) and (2) provide our preferred estimates, while columns (3) and (4) show that the results are robust to controlling for the presence of non-local media stations. [Table 4 about here.] We find that local media play a key role in supporting electoral accountability. Voters only punish the incumbent party when an audit report released before an election reveals the incumbent mayor to be corrupt only in the presence of sufficient local media stations. 43 The Online Appendix reports quantitatively similar, but far noisier, estimates for the neighbors sample, which includes only a selection of precincts from 181 municipality elections and only identifies out of within-neighbor variation. 28

29 Column (1) shows that, on average, mayors in the third and fourth quartiles of the corruption distribution experience a significant loss in their vote share almost 1 percentage point for each additional local media station. A standard deviation increase in the number of media stations, which entails 10.6 more media stations, thus reduces the vote share of an incumbent revealed to be corrupt by around 7.5 percentage points. This represents half of the average municipal victory margin (in the sample) of 15 percentage points. However, the insignificant positive interactions between our audit dummy and a mayor s corruption quartile indicate that revealing a mayor to be corrupt is not punished electorally in precincts covered by no (or few) media stations. On the other hand, clean incumbent parties are only meaningfully rewarded for their good performance in the presence of local media stations. The statistically significant coefficient on the interaction between being audited before an election and the number of local media stations shows that an additional local media station publicizing that the incumbent mayor did not engage in unauthorized spending increases the incumbent party s vote share by 0.7 percentage points. 44 In precincts where local media reveals a mayor to have neglected the poor, we observe slightly larger effects, and punishment is increasing in the severity of a mayor s neglect. Column (2) shows that an additional local media station reduces a neglectful mayor s vote share by 0.8 percentage points for mayors in the third quartile and 1.2 percentage points for mayors in the most neglectful quartile. A standard deviation increase in the number of local media stations thus entails an 13 percentage point decrease in the vote share of the most neglectful mayors if their behavior is revealed before an election. This represents a 25% reduction in their precinct vote share. Again, the insignificant interaction between the pre-election audit release and not spending on the poor shows that in locations with zero local media stations the party of the mayor is not meaningfully electorally sanctioned. Furthermore, the significant positive interaction between revealing an audit and the total number of local media stations shows that parties that were revealed to have correctly spent all their FISM funds on projects benefiting the poor are boosted at polls, although not as much as malfeasant mayors are punished. It is possible that voters are more likely to believe that their municipal representatives are corrupt than neglectful, and thus positive information that contradicts this prior is rewarded more. 44 By contrast, there is no significant effect associated with the (unreported) interactions between local media and audit report outcomes released after the election, for either corruption or not spending on the poor. These coefficients are omitted to save space. 29

30 It is important to remember that the average proportion of funds not spent on the poor in the third and fourth quartiles are slightly higher than for corruption. Nevertheless, the point estimates suggest that the electoral impact of an additional local media station reporting a fixed proportion of misallocated funds is, on average, around 25% higher for not spending on the poor than corruption. The findings thus suggest that local-media revelations about misallocated spending are at least as as important to voters as revelations about unauthorized spending. [Table 5 about here.] Which types of media platform drive such electoral accountability? To better understand local media s effects, we implemented the same identification strategy separately for local radio and television stations. Table 5 reports the main results for FM radio and television when we only identify out of neighbors that respectively differ in the number of such media stations that they receive. 45 Consistent with television s status as the main source of news consumption, the effect of local media appears to be driven primarily by additional local television stations. For both corruption and neglect of the poor, television has very large effects on incumbent electoral performance: while each additional local television reduces a malfeasant incumbent party s vote share by 3-5 percentage points, a high-performing incumbent party benefits by a similar margin. Although television stations are far less prevalent than radio stations, a standard deviation increase in local television stations nevertheless translates into reducing the incumbent party s vote share by almost 25% in the most egregious cases. With a similar sample size, there is no clear sanctioning effect associated with FM radio No role for non-local media We now consider the role of non-local media. Columns (3) and (4) of Table 4 add interactions with non-local media to our main estimates for the interaction between audit reports released before an election and local media. First, and unsurprisingly given that local media is well balanced across the number of non-local stations, we find that the local media point estimates are unaffected. If anything, the estimates slightly increase and are more precisely estimated. Second, the non-local media interactions suggest that non-local media does not support 45 Given the extensive reach of AM radio stations and our restriction to urban areas, the AM sample cannot provide informative estimates and is thus omitted. The available sample size drops to 1,

31 either rewarding or sanctioning the incumbent party. This suggests that local media is the key driver of electoral accountability, and thus any media coverage is not sufficient to punish the parties of malfeasant mayors. However, because our design does not isolate exogenous variation in non-local media, this finding does not prove that non-local media serves to accountability function. [Table 6 about here.] To better test whether non-local media also facilitates electoral sanctioning, we again implement the same identification strategy to isolate plausibly exogenous variation in nonlocal media coverage. The results are presented in Table 6, and due to the larger sample size offer a more powerful test than for non-local media. However, the triple interaction between revealing an audit before the election, the audit s outcome and non-local media provides no evidence that the number of media stations broadcasting from outside the municipality affect the incumbent party s vote share. Comparing these estimates to those for local media in Table 4, the effect of such non-local media is indistinguishable from zero and always smaller than for local media. 46 This evidence reinforces our claim that the presence of local media is essential for electoral accountability Robustness checks We now demonstrate that our main findings for local media are robust to a variety of robustness tests. Table 7 presents the results of these specification and variable definition checks, focusing on the triple interactions identifying the effects of local media revealing mayoral malfeasance. First, although the number of local media is very well balanced across pre-treatment variables, we nevertheless ensure that our results are not driven by the most plausible potential confounds. Columns (3) and (4) of Table 4 showed that our results are robust to including an interaction with the number of non-local media. As a more general test, columns (1) and (2) of panel A in Table 7 simultaneously include the interaction of audit results with second-order polynomials for four important background indicators: non-local media, distance to the municipal head (from the precinct centroid), average years of education, and the proportion of households with a car. For both corruption and neglectful incumbents, if anything we find larger and precisely estimated effects. 46 We also find the same results when using the neighbors sample used to estimate the effect of local media. 31

32 [Table 7 about here.] A second potential concern is that our results are driven by restricting attention to relatively small neighboring precincts. Accordingly, columns (3)-(6) in panel A of Table 7 show similar, if not larger, estimates when our 10 km 2 restriction is relaxed to 25km 2 and 50km Third, to address the possibility that media and election dynamics in municipalities receiving audit reports after the election are different, we drop the post-election comparison. We thus focus only on precincts in municipalities where audit reports were released before an election, and identify entirely off variation in local media before the election. The results in columns (7) and (8) of panel A show that we obtain similar results. Given the noise introduced by the DD design, this approach increases the precision of our estimates despite dropping 40% of the sample. Fourth, we consider alternative operationalizations of malfeasance. Columns (1) and (2) of panel B in Table 7 first report linear measures of corruption and not spending on the poor. In both cases the effects are negative and fairly large in magnitude: for each additional 10% of the FISM budget not spent correctly, a standard deviation increase in local media stations reduces the incumbent vote share by 2.2 percentage points in the case of corruption and 3.9 percentages points in the case of not spending on the poor. However, the estimate for corruption is not statistically significant. Together with our previous results, this suggests that corruption s effects are non-linear. To further examine when the impact of malfeasance kicks in, columns (3)-(8) sequentially operationalize malfeasant behavior using an indicator for corruption or funds not spent on the poor exceeding 5, 10 and 20% of FISM funds. At each level, not spending on the poor is punished, although the magnitude of punishment is greater for the 20% cutoff. For corruption, the evidence suggests that only the highest levels of corruption greater than 20% are severely punished. Fifth, at the cost of losing randomization in local media, we estimate equation (1) in the larger DD sample to check the external validity of the neighbor sample estimates. The results, provided in the Online Appendix, are broadly similar to our neighbor sample estimates. For both corruption and spending not on the poor, a mayor revealed to be in the most malfeasant quartile experiences a significant decrease in their vote share for each additional local media station. However, malfeasance in the third quartile is not punished. Although the samples differ in terms of both composition and quality of identification, the similarity of the results is encouraging. 47 Similar results are obtained when using all possible neighbors. 32

33 6.3 Media market structure Our main results show that only local media stations facilitate electoral accountability in terms of informing voters about the performance of their incumbent party. To better understand when media can support this important social function, we further investigate the media market structure. In particular, we focus on two important features: crowd-out by non-local media and the geographic composition of a station s potential audience Non-local media crowd out local media Since non-local media are less likely to cover the relevant political actors, and the preceding analysis demonstrated that non-local media stations do not affect incumbent electoral performance, an additional non-local media station could crowd-out the effects of local media. This possibility rests upon the likelihood that a new media station attracts listeners or viewers away from local media stations, plausibly because voters consume media for reasons other than acquiring politically-relevant information and are unable to increase consumption of all stations commensurately. [Table 8 about here.] To examine this possibility empirically, we interact the number of local media stations with the number of non-local stations in Table 8. The results are consistent with crowdout: for both and low performance incumbent mayors, non-local media stations weakens the impact of a local media station. Particularly for not spending on the poor, the significant quadruple interactions show that each additional non-local media station reduces the effect of an additional local media station by percentage points. In the average precinct, covered by nearly 15 non-local media stations, the impact of an additional local media station thus falls by around 2 percentage points. These positive interactions are are not statistically significant in the case of corruption. This evidence thus implies that the presence of uninformative non-local media stations drowns out the electoral accountability supported by local media, specially when it comes to investments not benefiting the poor. Implicitly, the fact that an additional non-local media station reduces the effect of local media suggests that voters indeed use local media to follow the news otherwise, an additional media station should not affect voter behavior This could arise because an additional non-local media station causes pre-existing firms to alter their content, or because voters shift toward the new non-local station. Without detailed media consumption data, we cannot differentiate these explanations. 33

34 6.3.2 Media markets determine news content To further explore the mechanism driving local media s effect, we consider the composition of the media market. As Snyder and Strömberg (2010) show, the congruence of political boundaries and media markets plays a key role in the content that broadcasters choose to provide. In our context, local media stations predominantly cover consumers within their municipality have the strongest incentives to cover audit reports relating to their municipality. However, despite emitting from a given municipality, some media stations may primarily serve audiences in other municipalities, and adjust their news coverage accordingly. To test this argument, we employ a similar approach to the congruence measure introduced by Snyder and Strömberg (2010). Specifically, for each local media station, we calculate the proportion of the population that receives a commercial quality signal that reside inside the municipal of the emitter. We then computed the average such share across all AM radio, FM radio and television stations covering a given electoral precinct. In our sample, 63% of the average local media station s audience is from within the municipality. Higher values imply that a given media station has a strong incentive to cover audit report outcomes in depth. As with our crowd-out analysis, we interact this measure of the local market with local media to examine how the accountability-enhancing effects of local media depend upon the media market. [Table 9 about here.] The results in Table 9 suggest that a media s station s market has important effects on electoral accountability. Consistent with news coverage depending upon the extent to which a station s market is local, we find that a larger local market share increases the reward and punishment of incumbent parties. This is particularly true in the case of not spending on the poor, where the large and statistically significant negative quadruple interaction implies that each additional media station with an entirely local market share would reduce the incumbent party s vote share by 2.9 percentage points for mayors in the third quartile and 3.7 percentage points for mayors in the fourth quartile. Similarly, mayors that correctly spend FISM funds on projects benefiting the poor gain 2.7 percentage points for an additional media station exclusively serving their market. Although the analogous coefficients for corruption are not statistically significant, they paint a similar picture where a mayor from the third quartile is punished by 1.9 percentage points and a mayor from the fourth quartile is punished by 1 percentage point. The party of a non-corrupt mayor receives a significant boost of

35 percentage points for each additional local media station serving only the local municipal market. 7 Conclusion Many scholars call media the fourth estate, due to its potential to inform voters about the behavior of politicians in office. Both national and local media are needed: while national media outlets cover national level actors, local media are necessary to inform voters about the performance of local politicians. While the influence of national media has received considerable attention, this article demonstrates the importance of local media for local electoral accountability in a federal setting where local governments play an increasingly important role in service delivery. Furthermore, we show that effective electoral accountability requires more than just a single local media outlet: we find that additional local media stations have large effects, even in relatively congested media markets. Using detailed local data, and an identification strategy that exploits both the timing of the release of audit reports with respect to elections and differences in signal coverage across neighboring electoral precincts, we identify the impact of the media environment on electoral accountability. We show that voters punish the party of malfeasant mayors, but only in electoral precincts covered by local radio or television stations. In particular, we find that each additional local media station reduces the vote share of an incumbent political party revealed to be corrupt by nearly 0.7 percentage points. Local media similarly reduces the vote share of an incumbent political party revealed to have diverted funds away from the poor by around 1.2 percentage points. However, we find no effect of non-local media stations that are based in other municipalities. Delving further into the structure of media markets, we show that non-local media crowd out the effects of local media plausibly by attracting away consumers of local news and that even local media may not as effectively support electoral accountability when their audience contains many consumers from outside the municipality. Our findings thus demonstrate the importance of media, especially local media, in supporting local electoral accountability by sanctioning malfeasant behavior. 35

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41 Standardized search activity (sigma) Feb 06 Feb 07 Feb 08 Feb 09 Feb 10 Feb 11 Feb 12 (a) Searches for ASF Standardized search activity (sigma) Feb 06 Feb 07 Feb 08 Feb 09 Feb 10 Feb 11 Feb 12 (b) Searches for FISM Figure 1: Google searches related to audit reports by month, Notes: Extracted using Google Correlate ( on 15th July The data cover Google searches in Mexico for the period used in our sample. 41

42 Figure 2: Distribution of audit report outcomes by municipality. Notes: Only the 268 municipalities in our final sample are included. Where more than one audit occurs, we take the average audit outcome. 42

43 Figure 3: AM radio signal coverage areas (source: IFE). Figure 4: FM radio signal coverage (source: IFE). 43