Working Paper: NBER ID: w28210
Authors: Akshaya Jha; Stephen A. Karolyi; Nicholas Z. Muller
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.
Keywords: No keywords provided
JEL Codes: G12; G14; Q52; Q53; Q58; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proposed rule announcement (Y20) | Yields increase (Q15) |
| Final rule announcement (Y20) | Yields decrease (Q31) |
| Noncompliance (H26) | Yields increase (Q15) |
| Proposed rule announcement (Y20) | Increased regulatory uncertainty (G18) |
| Final rule announcement (Y20) | Resolution of uncertainty (D80) |
| Counties just above the pollution threshold (Q53) | Yields increase (Q15) |