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Income Shocks and Demand for Sustainable Products

Author

Listed:
  • Ferreira, Miguel
  • Pires, Pedro
  • Soares, Margarida
  • Trindade, André

Abstract

As consumer and investor demand for sustainability rises, firms are expanding their portfolios to include more sustainable products. This paper investigates whether such firms, as a result, become more exposed to household income shocks. Using U.S. retail scanner data, we find that declines in household income significantly reduce the share of spending on sustainable products—especially among high-income households. These results are robust to alternative sustainability classifications and cannot be fully explained by health considerations. To help identify causal effects, we exploit exogenous variation in household income arising from the timing of tax rebate disbursements under the 2008 Economic Stimulus Payments program. A structural demand model indicates that the effect is driven by both high-income consumers’ lower price sensitivity and a stronger preference for sustainable products, irrespective of price. Our findings suggest that firms focusing on sustainable offerings may face greater demand volatility during income downturns, highlighting trade-offs in aligning business strategies with sustainability goals.

Suggested Citation

  • Ferreira, Miguel & Pires, Pedro & Soares, Margarida & Trindade, André, 2025. "Income Shocks and Demand for Sustainable Products," CEPR Discussion Papers 20465, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20465
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    File URL: https://cepr.org/publications/DP20465
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G50 - Financial Economics - - Household Finance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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