The Asymmetric Effect of Income Inequality in Reducing Carbon Intensity: Does Institutional Quality Matter?

Increasing environmental degradation and income inequality, especially in developing countries, are the greatest threats to sustainability. Identifying the factors that exacerbate these two problems can help to contain the ecological and social aspects of sustainable development. Moreover, understanding the determinants of inequality and environmental degradation, as well as the interconnections between them, is crucial for policy development towards sustainability. The literature on the environment-inequality relationship suggests that there is both a feedback effect and an opportunity cost between them. As production levels rise, so too does the amount of carbon emitted into the atmosphere. However, the reduction in carbon intensity associated with increased efficiency and the utilisation of renewable energies has been overlooked by researchers. In this context, this study assesses the impact of income inequality on carbon intensity in Türkiye, considering the interrelationships with human development, foreign direct investment (FDI), renewable energy consumption and institutional quality. In the study, which encompasses the period 1990-2022, the augmented nonlinear ARDL method is employed to elucidate the asymmetric impact of income inequality. Empirical findings show that income inequality increases carbon intensity, while FDI, human development and renewable energy consumption decrease it. The effect of institutional quality is insignificant. These results suggest that efforts to reduce income inequality in Türkiye may also facilitate decarbonisation of the production process. The negligible impact of institutional quality indicators is presumed to be attributable to the fact that institutions in Türkiye have not yet attained the desired level of efficiency.