Annual Conference

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Corporate Finance

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May 2022

Smokestacks and the Swamp

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