Do More Equal Societies Have Better Environment?

This paper examines whether wealth inequality affects environmental outcomes and whether governance quality, education, and readiness for the green transition moderate this relationship. Using panel data for 216 countries from 1970–2023, we estimate dynamic models with an instrumental-variable System GMM approach to address endogeneity from persistence, reverse causality, and institutional factors. Wealth inequality is a robust driver of higher CO₂ emissions, and its effects vary substantially across income groups. Stronger institutions, broader educational attainment, and greater renewable-energy penetration significantly weaken the emissions-increasing effect of inequality, identifying the mechanisms through which inequality shapes environmental performance. Robustness tests using alternative inequality measures (Top 1%, Top 10%, Bottom 50%, Gini) confirm that extreme wealth concentration increases emissions, while broader wealth distribution reduces them. Additional heterogeneity analyses show that these mechanisms operate differently across high-, middle-, and low-income countries. The findings establish inequality as a structural determinant of environmental outcomes and demonstrate that institutional, human-capital, and energy-transition channels mitigate its environmental consequences.