The impact of income inequality on public environmental expenditure with green consumerism

This article analyzes the impact of income inequality on environmental policy in the presence of green consumers. We first perform an empirical analysis using a panel of European countries over the period 1995-2021 showing the existence of a negative convex relationship between inequality and public spending in environmental protection. We also highlight that green consumerism can be a driving force of this empirical relationship. We next develop a political economy model with two main ingredients: citizens with different income capacities have access to two commodities whose consumption differs in terms of price and environmental impact, and they vote on the environmental policy. In this setting, a unique political equilibrium exists in which the population is split into two groups that differ in the type of good—conventional vs green—they consume. In line with empirical findings, we provide sufficient conditions under which inequality impairs the public policy.