The Opioid Epidemic and Local Public Financing: Evidence from Municipal Bonds
58 Pages Posted: 29 Sep 2019 Last revised: 10 Nov 2019
Date Written: September 15, 2019
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: Suggested Citation