Polluted waters and municipal finance
We show that pollution increases the offering yields of municipal bonds, indicating increased risk. We establish this using a difference-in-differences design, comparing the bonds from U.S. counties revealed to contain per- and poly-fluoroalkyl substances (PFAS) in their drinking-water supplies with...
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| Main Authors: | , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2021
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/7043 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8042/viewcontent/SSRN_id3821639.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We show that pollution increases the offering yields of municipal bonds, indicating increased risk. We establish this using a difference-in-differences design, comparing the bonds from U.S. counties revealed to contain per- and poly-fluoroalkyl substances (PFAS) in their drinking-water supplies with the bonds from neighboring, unpolluted, same-state counties. The increase was greater for riskier bonds characterized by repayment obligation, ex-ante debt burden, unrated issuance, maturity, and bankruptcy access. The resulting pollution-related investment needs and a reduction in public sector employment and expenditure likely underlie the risk. An instrumental variable-like method utilizing airports as a potential contamination source reaffirms the causal interpretation. |
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