Environmental Regulation and Investment: Evidence from European Industries

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Environmental Regulation and Investment: Evidence from European Industries

Author Info

Andrea M. Leiter ()
Arno Parolini ()
Hannes Winner ()

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Abstract

This paper contributes to the empirical literature on the relationship between environmental regulation and firm behavior. In particular, we ask whether and how strongly investment decisions of firms respond to stringency in environmental regulation. Environmental stringency is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country's revenue from environmental taxes. Focusing on European industry level data between 1995 and 2005, we estimate the differential impact of environmental stringency on four types of investment: gross investment in tangible goods, in new buildings, in machinery, and in `productive' investment (investment in tangible goods minus investment in abatement technologies). Both environmental variables enter positively, and their quadratic terms exhibit significantly negative parameter estimates. This, in turn, indicates a positive but diminishing impact of environmental regulation on investment.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2009-04.

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Length: 41
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:inn:wpaper:2009-04

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Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects

This paper has been announced in the following NEP Reports:

NEP-AGR-2009-03-14 (Agricultural Economics)
NEP-ALL-2009-03-14 (All new papers)
NEP-EEC-2009-03-14 (European Economics)
NEP-ENV-2009-03-14 (Environmental Economics)
NEP-REG-2009-03-14 (Regulation)
NEP-RES-2009-03-14 (Resource Economics)

References listed on IDEAS
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