The Opioid Epidemic and Local Public Financing: Evidence from Municipal Bonds

58 Pages Posted: 29 Sep 2019 Last revised: 10 Nov 2019

See all articles by Wei Li

Wei Li

Shanghai University of Finance and Economics

Qifei Zhu

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: September 15, 2019

Abstract

This paper examines the impact of the opioid epidemic on the financing costs of local governments. We find that a higher county-level drug overdose death rate raises offering yield spreads for local municipal bond issuers, while lowering their debt capacity. A causal interpretation is suggested by a 2SLS approach, using the distances between counties and their closest opioid manufacturer as instruments. Additionally, counties in states that introduced must-access prescription drug monitoring programs (PDMP) experienced a reduction in borrowing costs afterwards. The opioid crisis hurts issuer creditworthiness by reducing future governmental revenues and increasing police and criminal justice expenditures.

Keywords: Opioid epidemic, Municipal bonds, Public finance

JEL Classification: G12, G18, H7

Suggested Citation

Li, Wei and Zhu, Qifei, The Opioid Epidemic and Local Public Financing: Evidence from Municipal Bonds (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3454026 or http://dx.doi.org/10.2139/ssrn.3454026

Wei Li

Shanghai University of Finance and Economics

Guoding Rd 777
Yangpu District
Shanghai, 200433
China
(86) 021-65908840 (Phone)

Qifei Zhu (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

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