Lorenzo Trimarchi
(Université de Namur )
will give a presentation on
Environmental Political Cycles
Abstract: This paper analyzes the impact of adverse business cycle shocks on environmental regulation. Using the 2018 US-China trade war as a natural experiment, we find that higher exposure to Trump tariffs leads to lower regulation targets in China, inducing an increase in air pollution and carbon emissions. Politically-motivated changes in environmental policies rationalize our results: the central government and local party secretaries relax environmental regulations to mitigate the negative consequences of trade protection for the polluting industries. This paper is the first to document how politicians manipulate environmental regulation to curb negative GDP shock. Furthermore, our results suggest that the effect of trade policy on the environment can be asymmetric. While trade liberalizations increase pollution because of a rise in production scale, protectionism causes a rise in pollution because of a politically induced change in environmental regulation.