This study examines the effects of trade liberalization on municipal financing costs. Using the granting of permanent normal trade relations (PNTR) to China as an exogenous shock, we find that U.S. counties that are more exposed to trade liberalization issue bonds with significantly higher tax-adjusted yield spreads. Moreover, these counties pay higher gross spreads and are less likely to issue bonds after PNTR. We also show that secondary market yield spreads increase significantly in response to the U.S. granting of PNTR to China. In addition, we provide evidence that a reduction in debt serving capacity serves as a channel underlying the trade shock effects. Our findings highlight the costs of trade liberalization for public finance.

We investigate whether air pollution affects household stock market participation. Using representative household survey data in China, we find that households significantly reduce their financial risk taking when exposed to heavy air pollution. This finding is robust to an instrumental variable analysis and a regression discontinuity test based on the Huai River policy. To explore the underlying mechanisms, we find that air pollution significantly impairs health, increases unemployment risk, impedes cognitive performance, and dampens mood. We further show that these channels explain a non-trivial proportion of the relationship between air pollution and stock market participation. Our study sheds light on the far-reaching influence of air pollution on households’ well-being from the perspective of portfolio choice.