Corporate finance | Electoral politics | Empirics

Smokestacks and the Swamp

By Stefan Lewellen | Posted on 25 August 2022

Post type: Paper

We examine the causal effect of politicians’ partisan ideologies on firms’ industrial pollution decisions. Using a regression discontinuity design involving close U.S. congressional elections, we show that plants increase pollution and invest less in abatement following close Republican wins. We also find evidence of reallocation: firms shift emissions away from areas represented by Democrats. However, costs rise and M/B ratios decline for firms whose representation becomes more Democratic, suggesting that politicians’ ideological demands can be privately costly. Pollution-related illnesses spike around plants in Republican districts, suggesting that firms’ pass-through of politicians’ ideologies can have real consequences for local communities.

Co-Author(s): Emilio Bisetti, Arkodipta Sarkar, Xiao Zhao

# Tags: Political ideology | health outcomes | industrial pollution | reallocation

Link to Paper