Polluted Waters and Municipal Finance

53 Pages Posted: 20 Apr 2021 Last revised: 7 Oct 2021

See all articles by Daisy Huang

Daisy Huang

Southwestern University of Finance and Economics (SWUFE)

Amit Kumar

The Hong Kong University of Science and Technology

Date Written: March 1, 2021

Abstract

We show that pollution increases the offering yields of municipal bonds, indicating increased risk. We establish this using a difference-in-differences design, comparing the bonds from U.S. counties revealed to contain per- and poly-fluoroalkyl substances (PFAS) in their drinking-water supplies with the bonds from neighboring, unpolluted, same-state counties. The increase was greater for riskier bonds characterized by repayment obligation, ex-ante debt burden, unrated issuance, maturity, and bankruptcy access. The resulting pollution-related investment needs and a reduction in public sector employment and expenditure likely underlie the risk. An instrumental variable-like method utilizing airports as a potential contamination source reaffirms the causal interpretation.

Keywords: Municipal Bonds, Drinking Water Pollution, PFAS, Forever Chemicals.

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

Suggested Citation

Huang, Daisy and Kumar, Amit, Polluted Waters and Municipal Finance (March 1, 2021). Available at SSRN: https://ssrn.com/abstract=3821639 or http://dx.doi.org/10.2139/ssrn.3821639

Daisy Huang

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Amit Kumar (Contact Author)

The Hong Kong University of Science and Technology ( email )

Room No 5067. LSK Business Building. Hong Kong Uni
Hong Kong SAR, 000000
Hong Kong

HOME PAGE: http://www.amitkmr.com

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