Polluting Public Funds: The Effect of Environmental Regulation on Municipal Bonds

Akshaya Jha, Stephen Karolyi and Nicholas Muller

No 28210, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present three findings on the effects of environmental regulation on the municipal bond market. First, yields increase (decrease) after a new standard is proposed (finalized), consistent with the resolution of regulatory uncertainty. Second, around annual compliance announcements, yields fall for counties that remain in compliance but increase for newly noncompliant counties. Third, yields are substantially higher for bonds from counties just above the pollution threshold relative to counties just below the threshold. Our findings suggest that increases in regulatory stringency or uncertainty over future environmental policy increase the cost of municipal debt raised to fund critical infrastructure.

JEL-codes: G12 G14 Q52 Q53 Q58 R51 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: AP EEE PE
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