Policy Uncertainty Reduces Green Investment

Mengyu Wang, Jeffrey Wurgler and Hong Zhang

No 31401, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Government subsidies are often used to stimulate environment-friendly investment. We find that Chinese firms reduce green investment as the uncertainty of subsidies rises. This effect is identified from weather-driven fluctuations in air pollution that lead to fluctuations in subsidy allocations: Firms in cities where weather-driven subsidy uncertainty is high engage in less green R&D investment, patent applications, and research staff. Industries that are heavy emitters and those focused on environmental technologies are more affected. The results suggest that policy uncertainty may originate not only from political and macroeconomic shocks but from behavioral mechanisms that link policy to salient recent conditions.

JEL-codes: D8 O13 O3 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-ene, nep-env and nep-tid
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