Smokestacks and the Swamp

Abstract

We examine whether politicians use soft influence to affect local firms’ industrial pollution, and whether such influence is transmitted through plant-level networks to affect pollution in other regions. We first document that plants decrease emissions following close Democrat wins in U.S. congressional races, especially when politicians have strong pro-environmental preferences. Firms respond by reallocating emissions away from Democrats, leading to spillovers in other districts. However, reallocation is imperfect: firm-level costs increase and M/B ratios decline after firms’ representation becomes more Democratic. Pollution-related illnesses decrease around plants in Democratic districts and spill over through firms’ production networks to other communities.

Keywords: Stakeholder capitalism, politicians, industrial pollution, reallocation, health outcomes., Soft influence

JEL Classification: G32, G38, I15, L51, Q58