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Environmental Regulation and Investment: Evidence from European Industries

Author

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  • Andrea M. Leiter

    ()

  • Arno Parolini

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  • Hannes Winner

    ()

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.

Suggested Citation

  • Andrea M. Leiter & Arno Parolini & Hannes Winner, 2009. "Environmental Regulation and Investment: Evidence from European Industries," Working Papers 2009-04, Faculty of Economics and Statistics, University of Innsbruck.
  • Handle: RePEc:inn:wpaper:2009-04
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    File URL: https://www2.uibk.ac.at/downloads/c4041030/wpaper/2009-04.pdf
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    References listed on IDEAS

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    Cited by:

    1. Abdullah, Sabah & Morley, Bruce, 2014. "Environmental taxes and economic growth: Evidence from panel causality tests," Energy Economics, Elsevier, vol. 42(C), pages 27-33.
    2. Chiara Franco & Giovanni Marin, 2013. "The Effect of Within-Sector, Upstream and Downstream Energy Taxes on Innovation and Productivity," SEEDS Working Papers 0214, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2014.

    More about this item

    Keywords

    Investment; environmental regulation; pollution abatement costs;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and 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 Adoption and Costs; Distributional Effects; Employment Effects

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