Municipal Bond Insurance and Public Infrastructure: Evidence from Drinking Water

71 Pages Posted: 29 Mar 2021 Last revised: 15 Feb 2022

See all articles by Ashwini K. Agrawal

Ashwini K. Agrawal

London School of Economics & Political Science (LSE)

Daniel Kim

BI Norwegian Business School

Date Written: February 14, 2022

Abstract

Bond insurers are intermediaries that are often relied upon by local governments for external financing. There is significant debate, however, about their impact on public infrastructure. In this paper, we study U.S. drinking water, and show that exogenous reductions in municipalities' access to bond insurance cause local governments to face higher borrowing costs, reduce external bond issuance, decrease investment in water infrastructure, and experience greater drinking water pollution. The evidence supports the view that well-functioning insurance markets for municipal debt have significant real effects on public infrastructure and environmental outcomes.

Keywords: Municipal Finance, Insurance, Investment, Public Goods, Drinking Water, Infrastructure, ESG

JEL Classification: G22, H41, H74, Q53, Q01, M14

Suggested Citation

Agrawal, Ashwini K. and Kim, Daniel, Municipal Bond Insurance and Public Infrastructure: Evidence from Drinking Water (February 14, 2022). Available at SSRN: https://ssrn.com/abstract=3813348 or http://dx.doi.org/10.2139/ssrn.3813348

Ashwini K. Agrawal (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Daniel Kim

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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