Environmental regulation and investment: Evidence from European industry data

Abstract

This paper contributes to the empirical literature on the effects of environmental regulation on investment. In particular, we ask whether and how strongly an industry's investment responds to stringency in environmental regulation. Environmental regulation is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country-industry's revenue from environmental taxes. Focusing on European data of manufacturing industries between 1998 and 2007, 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 tangib..