Smokestacks and the Swamp

Abstract

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.

Keywords: Pollution, Democrats, Republicans, reallocation, firm value, health outcomes

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