Clean identification? The effects of the Clean Air Act on air pollution, exposure disparities and house prices

We analyze the effect of the U.S. Clean Air Act standards for fine particulate matter (PM2.5). Using high-resolution air pollution data, we find that nonattainment designations in 2005 led to reductions in PM2.5 levels by 0.4µm/3 over five years, with larger effects in more polluted areas. Standard difference-in-differences would overstate these effects by a factor of three due to time trends that differ by baseline pollution. We propose three alternative approaches which respectively control for baseline pollution levels, match similar attainment and nonattainment areas, and exploit the discontinuous regulatory nonattainment cutoff. We show that nonattainment designations contributed to narrowing Urban-Rural and Black-White PM2.5 exposure disparities, but less than in a difference-in-differences framework. Pollution damages capitalized into house prices, however, are understated by difference-in-differences when using nonattainment as instrument and thus larger than previously thought.