Opioid Crisis Effects On Municipal Finance

We investigate the effects of opioid abuse on municipal finance. We employ instrumental variables, border discontinuity difference-in-differences regressions, and Coarsened Exact Matching to identify consistent causal effects, controlling for variation in economic conditions and demographics. Opioid abuse lowers credit ratings, increases new offer yields, and reduces bond issuance. Reversal of these effects following effective anti-opioid legislation further supports causality. Differential effects due to investor heterogeneity suggest that opioid abuse affects municipal finance through a capital supply channel. Overall, we conclude that opioid exposure impedes municipalities’ access to capital and thus hurts their ability to provide public services and infrastructure.

Keywords: Access to Finance, Municipal Bonds, Opioid Epidemic, Public Finance, Prescription Drug Monitoring Program

JEL Classification: G12, G14, G18, G24, H72, H74, H75, I15

Suggested Citation: Suggested Citation

Cornaggia, Kimberly and Hund, John and Nguyen, Giang and Ye, Zihan, Opioid Crisis Effects On Municipal Finance (April 14, 2021). Review of Financial Studies, vol. 35, no. 4, 2021, pp. 2019–2066, Available at SSRN: https://ssrn.com/abstract=3448082 or http://dx.doi.org/10.2139/ssrn.3448082