Smokestacks and the Swamp

78 Pages Posted: 26 Oct 2021 Last revised: 29 Jun 2022

See all articles by Emilio Bisetti

Emilio Bisetti

Hong Kong University of Science and Technology (HKUST)

Stefan Lewellen

Pennsylvania State University - Department of Finance

Arkodipta Sarkar

National University of Singapore

Xiao Zhao

Hong Kong University of Science and Technology

Date Written: June 24, 2022

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

Suggested Citation

Bisetti, Emilio and Lewellen, Stefan and Sarkar, Arkodipta and Zhao, Xiao, Smokestacks and the Swamp (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=3947936 or http://dx.doi.org/10.2139/ssrn.3947936

Emilio Bisetti

Hong Kong University of Science and Technology (HKUST) ( email )

Clear Water Bay, Kowloon
Hong Kong

Stefan Lewellen (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

Arkodipta Sarkar

National University of Singapore ( email )

Kent Ridge
119077
Singapore

Xiao Zhao

Hong Kong University of Science and Technology ( email )

Hong Kong

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