Environmental deterrence in developing countries: evidence from enforcement actions and fines under the toxics monitoring program of Mexico

Abstract In this study we investigate the effectiveness of environmental regulation in a large developing country. We construct a panel of 3,436 major toxics polluters from 2004 to 2015 using detailed plant-specific data on toxics releases, inspections, and fines, across Mexico. Our results show that regulators target polluters who are significantly non-compliant and impose higher fines on them. This has implications for the cost efficiency of monitoring and regulatory enforcement. An additional priority violation increases current toxics inspections, fines, and amount of fines by 7, 5 and 18 per cent, respectively. An additional priority violation followed by fines imposed on the plant results in a reduction in annual toxics releases by more than 50 per cent. Higher fines imposed on other major facilities in the same municipality induce plants to reduce the annual release of toxic pollutants by 0.1 per cent. Finally, inspections and fines increase the likelihood of reporting toxics releases.