Does bread stay fresh better in a paper bag or in a plastic bag?

"Better" is a bit subjective. In a plastic bag, bread will dry out less - so it will not become stale as fast. But it will tend to become mouldy much more quickly. If you consume it in a reasonable amount of time: say, within a day, the taste will be better in the paper bag. Actually, a good compromise is a bread-box: something that lets the bread breathe - which maintains a better taste - but not too much - so it does not dry out.

For longer periods, refrigeration or freezing is a good option. You can defrost it slowly or wet the outside and place it in a hot oven. If you care about taste or texture, do NOT use a microwave.

Plastic Bags For Bread

Bread freshness is not due to lack of exposure to air. Bread freshness is due to the lack of mold and bacteria having invaded the bread in the warm, moist environment of a sealed plastic bag. Fresh bread goes in a breadbox or paper bag (or 2). This allows very limited air flow, making the environment less friendly to mold and bacteria. Even so, bread won't stay fresh for more than a fews days unless frozen as described above.

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RE:

Does bread stay fresh better in a paper bag or in a plastic bag?

Our local little bakery sells its fresh bread un"bagged". So I'll ask for a paper bag and bring it home. After some hours they put them into plastic bags, and I buy it like this.

Which keeps the bread fresh best? (My feeling is that it is the paper bag.)

Freshness is due to the lack of exposure to air. Let the bread sit in the open and the bread become stale. The best scenario is to have the bread in a vacuum sealed plastic bag. Paper bags will let in far more fresh air than plastic bags, but if the bread is still exposed to air, it will eventually go stale too.