Municipal and Economic Consequences of PFAS Contamination Discovery

Abstract

Hazardous yet previously unmonitored and unregulated, per- and polyfluoroalkyl substances (PFAS) were detected in 2016 in public drinking water systems of 33 US states during the first-ever PFAS testing. A paired-county difference-in-differences design comparing contaminated counties with bordering, same-state uncontaminated counties shows that the contamination discovery raised municipal bond offering yields by 13 basis points. Municipal revenues, taxes, employment, and expenditures declined, while household out-migration increased. Consistent with rising compensating wage differentials, wages in tradable industries rose, but job creation fell, and firm closures increased. Unemployment and self-employment also increased, emphasizing the multifaceted adverse effects of the PFAS contamination discovery.

Keywords: Municipal Bonds, PFAS (Forever Chemicals) Contamination, Drinking Water Contamination

JEL Classification: G14, H72, H74, Q53, Q58.