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When Help Hurts: The Environmental Externalities of Industrial Subsidies
Yangyang Chen  1@  , Jie Li  1@  , Wei Li  1@  
1 : CityU HK

This paper examines the environmental consequences of U.S. state government subsidies to industrial firms. Exploiting a within-firm empirical design, we find that subsidized plants in a given state increase their pollution by 25% relative to their sibling plants in other states, conditional on their operational scales. While subsidized plants expand their workforce, they hire less experienced employees and adopt fewer environmentally friendly production processes. Further, the career incentives of politicians who grant these subsidies appear to weaken the environmental enforcement against subsidized firms. Local residents suffer from increases in subsidy-induced pollution, since localities with a higher concentration of subsidized plants experience deteriorations in air quality and residential health outcomes. Our study highlights the environmental externalities associated with government subsidies and their impact on local communities, an important dimension of local residential well-being largely overlooked in the evaluation of subsidy policies. 


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