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This paper contributes to the empirical literature on the relationship between environmental regulation and firm behavior. In particular, the authors ask whether and how strongly an industry's investment responds to stringency in environmental regulation. Environmental stringency is measured as an industry's total current expenditure on environmental protection, and a country's revenue from environmental taxes. Focusing on European industry level data between 1995 and 2005, they 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).
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