Opioid Crisis Effects On Municipal Finance

83 Pages Posted: 12 Sep 2019 Last revised: 16 Apr 2021

See all articles by Kimberly Cornaggia

Kimberly Cornaggia

Pennsylvania State University - Department of Finance

John Hund

University of Georgia

Giang Nguyen

Pennsylvania State University - Smeal College of Business

Zihan Ye

University of Nevada, Las Vegas

Date Written: April 14, 2021

Abstract

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

Cornaggia, Kimberly and Hund, John and Nguyen, Giang and Ye, Zihan, Opioid Crisis Effects On Municipal Finance (April 14, 2021). Available at SSRN: https://ssrn.com/abstract=3448082 or http://dx.doi.org/10.2139/ssrn.3448082

Kimberly Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)

HOME PAGE: http://directory.smeal.psu.edu/kjr15

John Hund

University of Georgia ( email )

Athens, GA 30602
United States

Giang Nguyen

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

HOME PAGE: http://directory.smeal.psu.edu/gxn13

Zihan Ye

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

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