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The income inequality-CO2 emissions nexus: Transmission mechanisms

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  • Wan, Guanghua
  • Wang, Chen
  • Wang, Jinxian
  • Zhang, Xun

Abstract

Income distribution and environmental degradation represent two of the most important goals in the SDGs (Sustainable Development Goals). However, the linkage between income inequality and carbon emissions remains controversial. Relying on a large set of cross-country panel data (217 countries from 1960 to the latest), this paper contributes to the literature by using the instrumental variable approach to estimate the causal impact of income inequality on carbon emissions and exploring the underlying transmission mechanisms. Our modelling results indicate that there is a trade-off between income inequality and CO2 emissions. And the underlying mechanisms include (1) diminishing marginal propensity to emit (DMPE) coupled with the economic law of diminishing marginal propensity to consume (DMPC); (2) high income inequality induces increases in R&D expenditure, leading to reductions in CO2 emissions; (3) political freedom does not significantly affect the relationship between income inequality and CO2 emissions.

Suggested Citation

  • Wan, Guanghua & Wang, Chen & Wang, Jinxian & Zhang, Xun, 2022. "The income inequality-CO2 emissions nexus: Transmission mechanisms," Ecological Economics, Elsevier, vol. 195(C).
    • Handle: RePEc:eee:ecolec:v:195:y:2022:i:c:s0921800922000222
    DOI: 10.1016/j.ecolecon.2022.107360
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    More about this item

    Keywords

    Income inequality; CO2 emissions; Political freedom; MPE; MPC;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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