Unintended Consequences of Air Pollution Policy: Evidence from German Low Emission Zones

Abstract: This paper analyzes the effectiveness and spillover effects of German LEZs with respect to the major contaminants particulate matter (PM10), nitrogen dioxide (NO2) and ozone (O3) by pursuing a regression discontinuity (RD) strategy. An RD strategy innovates compared to the existing literature, which largely uses difference-in-differences (DD) approaches to identify the effectiveness of LEZs. We argue that a DD analysis should proceed with care, as the control group may be contaminated due to spillovers if LEZs lead to increases or decreases in pollution levels outside the LEZ. Indeed, we find that LEZs are effective at reducing PM10 levels inside the zones’ boundaries, whereas they induce increases in NO2 and decreases in O3 outside the zones’ boundaries. Furthermore, we analyze whether LEZs make a difference to individuals by investigating whether LEZs affect individual-level outcomes with respect to self-rated health and well-being, using data from the German Socio-Economic Panel Study (SOEP). Preliminary results suggest that LEZs decrease the life satisfaction of individuals living inside the zone without having a significant effect on health satisfaction. Joint work with Luis Sarmiento and Aleksandar Zaklan.