IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v217y2024ics0921800923002926.html

The effect of inflation on CO2 emissions: An analysis over the period 1970–2020

Author

Listed:
  • Grolleau, Gilles
  • Weber, Christoph

Abstract

Does inflation affect CO2 emissions? Surprisingly, this crucial relationship has not benefited from enough academic attention. As a result, we fill this knowledge gap and examine conceptually and empirically the effect of inflation on CO2 emissions over a large sample of countries (N = 189) and a 50-year period (1970–2020). More precisely, we run fixed effects regressions and panel cointegration tests. We find a modest, but significant negative relationship between core inflation and CO2 emissions per capita. The effect is also present for total CO2 emissions. Nevertheless, this effect is too weak to reach recommended CO2 emission reductions. Ceteris paribus, a 10-percentage points increase of core inflation over a 5-year span leads, on average, to a reduction of CO2 emissions per capita by roughly 0.36. This implies that other policies are needed.

Suggested Citation

  • Grolleau, Gilles & Weber, Christoph, 2024. "The effect of inflation on CO2 emissions: An analysis over the period 1970–2020," Ecological Economics, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:ecolec:v:217:y:2024:i:c:s0921800923002926
    DOI: 10.1016/j.ecolecon.2023.108029
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800923002926
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ecolecon.2023.108029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Wan, Guanghua & Wang, Chen & Wang, Jinxian & Zhang, Xun, 2022. "The income inequality-CO2 emissions nexus: Transmission mechanisms," Ecological Economics, Elsevier, vol. 195(C).
    2. Coibion, Olivier & Georgarakos, Dimitris & Gorodnichenko, Yuriy & van Rooij, Maarten, 2019. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," Department of Economics, Working Paper Series qt3zh865pj, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Ge Gao & Xiuting Li & Xiaoting Liu & Jichang Dong, 2021. "Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities," Energies, MDPI, vol. 14(21), pages 1-16, November.
    4. Duca-Radu, Ioana & Kenny, Geoff & Reuter, Andreas, 2021. "Inflation expectations, consumption and the lower bound: Micro evidence from a large multi-country survey," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 120-134.
    5. Burkhard Heer & Bernd Sussmuth, 2009. "The savings-inflation puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 16(6), pages 615-617.
    6. Álvarez-Herránz, Agustín & Balsalobre, Daniel & Cantos, José María & Shahbaz, Muhammad, 2017. "Energy Innovations-GHG Emissions Nexus: Fresh Empirical Evidence from OECD Countries," Energy Policy, Elsevier, vol. 101(C), pages 90-100.
    7. Baglan, Deniz & Yoldas, Emre, 2014. "Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model," Economics Letters, Elsevier, vol. 125(1), pages 93-96.
    8. Ha, Jongrim & Kose, M. Ayhan & Ohnsorge, Franziska, 2023. "One-stop source: A global database of inflation," Journal of International Money and Finance, Elsevier, vol. 137(C).
    9. Dressler, Scott, 2016. "A long-run, short-run, and politico-economic analysis of the welfare costs of inflation," Journal of Macroeconomics, Elsevier, vol. 47(PB), pages 255-269.
    10. Yamamori, Tetsuo & Iwata, Kazuyuki & Ogawa, Akira, 2018. "Does money illusion matter in intertemporal decision making?," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 465-473.
    11. Bick, Alexander, 2010. "Threshold effects of inflation on economic growth in developing countries," Economics Letters, Elsevier, vol. 108(2), pages 126-129, August.
    12. Muhammad Ali Musarat & Wesam Salah Alaloul & M. S. Liew & Ahsen Maqsoom & Abdul Hannan Qureshi, 2021. "The Effect of Inflation Rate on CO 2 Emission: A Framework for Malaysian Construction Industry," Sustainability, MDPI, vol. 13(3), pages 1-16, February.
    13. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    14. Li Wang & Fei Xing & Yishan Yu & Yunhao Dai, 2021. "Does severe air pollution affect firm innovation: evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 28(7), pages 551-558, April.
    15. Benjamin Marx & Vincent Pons & Vincent Rollet, 2022. "Electoral Turnovers," Working Papers hal-03812816, HAL.
    16. Grunewald, Nicole & Klasen, Stephan & Martínez-Zarzoso, Inmaculada & Muris, Chris, 2017. "The Trade-off Between Income Inequality and Carbon Dioxide Emissions," Ecological Economics, Elsevier, vol. 142(C), pages 249-256.
    17. Ghossoub, Edgar A. & Reed, Robert R., 2017. "Financial development, income inequality, and the redistributive effects of monetary policy," Journal of Development Economics, Elsevier, vol. 126(C), pages 167-189.
    18. Waheed Ahmad & Sana Ullah & Ilhan Ozturk & Muhammad Tariq Majeed, 2021. "Does inflation instability affect environmental pollution? Fresh evidence from Asian economies," Energy & Environment, , vol. 32(7), pages 1275-1291, November.
    19. Bonam, Dennis & Smădu, Andra, 2021. "The long-run effects of pandemics on inflation: Will this time be different?," Economics Letters, Elsevier, vol. 208(C).
    20. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    21. Nestor Shpak & Solomiya Ohinok & Ihor Kulyniak & Włodzimierz Sroka & Yuriy Fedun & Romualdas Ginevičius & Joanna Cygler, 2022. "CO 2 Emissions and Macroeconomic Indicators: Analysis of the Most Polluted Regions in the World," Energies, MDPI, vol. 15(8), pages 1-22, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ikram, Muhammad & Nahdi, Rabie, 2025. "Toward sustainable development: Unfolding the nexus among exports, foreign direct investment, capital formation, natural resource rent, unemployment, and low-carbon transition in Morocco," Resources Policy, Elsevier, vol. 102(C).
    2. Usman, Muhammad & Horobet, Alexandra & Radulescu, Magdalena & Balsalobre-Lorente, Daniel, 2025. "Environmental taxes, environmental policy stringency and policy complementarity: A comprehensive analysis of EU economic and environmental goals," International Review of Economics & Finance, Elsevier, vol. 103(C).
    3. Mahmut Unsal Sasmaz & Yilmaz Bayar & Yasin Galip Gencer, 2025. "The effect of business regulations, property rights, and legal system on CO2 emissions: empirical evidence from the BRICS-T countries," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-10, December.
    4. Weber, Christoph & Falchi, Alice & Chassagnon-Haned, Naciba, 2025. "Is innovation good for the environment? A macro-level analysis," Ecological Economics, Elsevier, vol. 237(C).
    5. Nadeen Omar & Jens Klose, 2024. "The Response of CO2 Emissions to Macroeconomic Shocks - A Panel VAR Analysis," MAGKS Papers on Economics 202405, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. George Hondroyiannis & Evangelia Papapetrou & Pinelopi Tsalaporta, 2025. "Environmental degradation and inflation in high-income countries," Economic Change and Restructuring, Springer, vol. 58(1), pages 1-28, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    2. Polemis, Michael & Tselekounis, Markos, 2019. "Does deregulation drive innovation intensity? Lessons learned from the OECD telecommunications sector," MPRA Paper 92770, University Library of Munich, Germany.
    3. Can Sever & Emekcan Yucel, 2021. "Electoral Cycles in Inequality Abstract:," Working Papers 2021/01, Bogazici University, Department of Economics.
    4. Dong, Zequn & Tan, Chaodan & Zhang, Wenxue & Zhang, Lixiang & Zhang, Lingran, 2024. "Are natural resources a blessing or a curse for renewable energy? Uncovering the role of regulatory quality and government effectiveness in mitigating the curse," Resources Policy, Elsevier, vol. 98(C).
    5. He, Qichun & Zhang, Zhixiang, 2019. "Inflation and Growth: An Inverted-U Relationship," MPRA Paper 97092, University Library of Munich, Germany.
    6. Dorn, Franziska & Maxand, Simone & Kneib, Thomas, 2024. "The nonlinear dependence of income inequality and carbon emissions: Potentials for a sustainable future," Ecological Economics, Elsevier, vol. 216(C).
    7. Li, Ruoyu & Gan, Yufei & Bao, Yifei & Zhou, Yun & Si, Dingwen & Liu, Qian, 2024. "Natural resources efficiency in terms of digital economy: Institutional efficiency and digital economy from the lens of natural resources," Resources Policy, Elsevier, vol. 93(C).
    8. Waaje, Abdul & Roshid, Md Mustaqim & Islam, Sohidul & Chandra Bhowmik, Reday & Rahaman, Muhammad Abdur & Hassan, Md Mahedi, 2025. "Tourism, trade, energy, and economic development: Drivers of ecological footprint in the World’s top tourist destinations," Innovation and Green Development, Elsevier, vol. 4(3).
    9. Baglan, Deniz & Yoldas, Emre, 2014. "Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model," Economics Letters, Elsevier, vol. 125(1), pages 93-96.
    10. Muhammad Awais Baloch & Danish, 2022. "The nexus between renewable energy, income inequality, and consumption‐based CO2 emissions: An empirical investigation," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1268-1277, October.
    11. Ren, Zhiyuan & Zhu, Yuhan, 2025. "The trade-off between middle class and ecological footprint: Empirical cross-country analysis," Ecological Economics, Elsevier, vol. 235(C).
    12. Ofori, Pamela E. & Ofori, Isaac K. & Annan, Kenneth, 2024. "The Role of Energy Equity and Income Inequality in Environmental Sustainability," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    13. Kim, Dong-Hyeon & Lin, Shu-Chin, 2024. "Inflation and wealth inequality," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 893-907.
    14. Alessio Ciarlone, 2019. "The relationship between financial development and growth: the case of emerging Europe," Questioni di Economia e Finanza (Occasional Papers) 521, Bank of Italy, Economic Research and International Relations Area.
    15. Ren Yishuai & Jiang Yong & Ma Chaoqun & Liu Jianglong & Chen Jing, 2021. "Will Tax Burden Be a Stumbling Block to Carbon-Emission Reduction? Evidence from OECD Countries," Journal of Systems Science and Information, De Gruyter, vol. 9(4), pages 335-355, August.
    16. Bui, Dzung & Dräger, Lena & Hayo, Bernd & Nghiem, Giang, 2020. "Consumer Sentiment During the COVID-19 Pandemic: The Role of Others‘ Beliefs," Hannover Economic Papers (HEP) dp-680, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Apr 2021.
    17. Shagas, Natalia (Шагас, Наталья) & Bojechkova, A.V. (Божечкова, А.В.) & Perevyshin, Y.N. (Перевышин, Ю.Н.) & Perevyshina, E.A. (Перевышина, Е.А.), 2016. "Modeling of State Influence on the Processes of Economic Growth [Моделирование Воздействия Государства На Процессы Экономического Роста]," Working Papers 2132, Russian Presidential Academy of National Economy and Public Administration.
    18. Xiuqin Zhang & Xudong Shi & Yasir Khan & Taimoor Hassan & Mohamed Marie, 2023. "Carbon Neutrality Challenge: Analyse the Role of Energy Productivity, Renewable Energy, and Collaboration in Climate Mitigation Technology in OECD Economies," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    19. Salotti, Simone, 2008. "Global imbalances and household savings: the role of wealth," MPRA Paper 17729, University Library of Munich, Germany, revised 2009.
    20. Chau, Ka Yin & Sadiq, Muhammad & Chien, FengSheng, 2023. "The role of natural resources and eco-financing in producing renewable energy and carbon neutrality: Evidence from ten Asian countries," Resources Policy, Elsevier, vol. 85(PA).

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:217:y:2024:i:c:s0921800923002926. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.