Municipal and Economic Consequences of PFAS Contamination Discovery
55 Pages Posted: 20 Apr 2021 Last revised: 8 Feb 2024
Date Written: March 1, 2021
We show that discovery of contamination by pollutants that are unmonitored and unregulated adversely affects local municipal finances and economic conditions. We causally document a 9-basis-points increase in primary market yields of municipal bonds from the counties where per- and polyfluoroalkyl substances (PFAS) contamination was discovered for the first time, vis-à-vis the bonds from bordering, uncontaminated, same-state counties. The yields increased more for riskier bonds. We link the increased yields to a reduction in allocation by mutual funds and banks in the municipal bonds from the affected counties. These counties subsequently experienced heightened out-migration and depressed public expenditure and employment.
Keywords: Municipal Bonds, Drinking Water Contamination, PFAS Contamination, Forever Chemicals.
JEL Classification: G14, H72, H74, Q53, Q58.
Suggested Citation: Suggested Citation