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Income inequality and willingness to pay for public environmental goods

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  • Baumgärtner, Stefan
  • Drupp, Moritz A.
  • Meya, Jasper N.
  • Munz, Jan M.
  • Quaas, Martin F.

Abstract

We study how the distribution of income among members of society, and income inequality in particular, affects social willingness to pay (WTP) for environmental public goods. We find that social WTP for environmental goods increases with mean income, and decreases (increases) with income inequality if and only if environmental goods and manufactured goods are substitutes (complements). Furthermore, social WTP for environmental normally changes more elastically with mean income than with income inequality. We derive adjustment factors for benefit transfer to control for differences in income distributions between a study site and a policy site. For illustration, we quantify how social WTP for environmental public goods depends on the respective income distribution for empirical case studies in Sweden, China and the World. We find that the effects of adjusting for income inequality can be substantial.

Suggested Citation

  • Baumgärtner, Stefan & Drupp, Moritz A. & Meya, Jasper N. & Munz, Jan M. & Quaas, Martin F., 2016. "Income inequality and willingness to pay for public environmental goods," Economics Working Papers 2016-04, Christian-Albrechts-University of Kiel, Department of Economics.
  • Handle: RePEc:zbw:cauewp:201604
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    References listed on IDEAS

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    Cited by:

    1. Bas (B.) Jacobs & Rick (F.) van der Ploeg, 2017. "Should Pollution Taxes Be Targeted At Income Redistribution?," Tinbergen Institute Discussion Papers 17-070/VI, Tinbergen Institute.
    2. Moritz A. Drupp, 2018. "Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 135-158, January.
    3. Meya, Jasper N. & Drupp, Moritz A. & Hanley, Nick, 2017. "Income inequality and the international transfer of environmental values," Economics Working Papers 2017-03, Christian-Albrechts-University of Kiel, Department of Economics.

    More about this item

    Keywords

    environmental goods; public goods; income distribution; inequality; willingness to pay; benefit transfer; sustainability policy;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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