Opioid Crisis Effects On Municipal Finance
Review of Financial Studies, vol. 35, no. 4, 2021, pp. 2019–2066
83 Pages Posted: 12 Sep 2019 Last revised: 28 Aug 2022
Date Written: April 14, 2021
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