Can Environmental Policy Encourage Technical Change? Emissions Taxes and R&D Investment in Polluting Firms

James R Brown, Gustav Martinsson and Christian Thomann

The Review of Financial Studies, 2022, vol. 35, issue 10, 4518-4560

Abstract: Higher country taxes on noxious manufacturing emissions lead to substantial increases in firms’ R&D spending. The R&D response is entirely driven by those high-pollution firms most affected by emissions taxes. Pollution taxes increase the marginal value of R&D spending in polluting firms, even when this spending does not lead to new innovation. Pollution taxes have the strongest effect on R&D investment in sectors in which new invention is difficult to appropriate and outside knowledge is easier to acquire, suggesting an important reason dirty firms invest in R&D is to expand their capacity to absorb external knowledge and technical know-how.

JEL-codes: G31 O13 O33 Q53 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (14)

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