Abstract
This paper investigates whether changes in income inequality affect carbon dioxide (\(\mathrm{CO}_2\)) emissions in OECD countries. We examine the relationship between economic growth and \(\mathrm{CO}_2\) emissions by considering the role of income inequality in carbon emissions function. To do so, we use a new source of data on top income inequality measured by the share of pretax income earned by the richest 10% of the population in OECD countries. We also use Gini coefficients, as the two measures capture different features of income distribution. Using recently innovated panel data estimation techniques, we find that an increase in top income inequality is positively associated with \(\mathrm{CO}_2\) emissions. Further, our findings reveal a nonlinear relationship between economic growth and \(\mathrm{CO}_2\) emissions, consistent with environmental Kuznets curve. We find that an increase in the Gini index of inequality is associated with a decrease in carbon emissions, consistent with the marginal propensity to emit approach. Our results are robust to various alternative specifications. Importantly, from a policy perspective, our findings suggest that policies designed to reduce top income inequality can reduce carbon emissions and improve environmental quality.
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Notes
At the request of an anonymous referee, we also conduct a sensitivity check by excluding those countries rebuilding after World War II (WWII), including Germany, Japan, France, Netherlands, Italy and UK since our sample includes the period of WWII. Our results are robust to the exclusion of these countries.
As Baltagi and Pesaran (2007) argued that the heterogeneous approach yields more sensible results than assuming homogeneous fixed time effects. Similarly, Coakley et al. (2006), based on a Monte Carlo study, show that, overall, the CCEMG estimator stands out as the most efficient and robust. Kao and Chiang (2000) show that DOLS and FMOLS methods allow for feedback effect in the estimations.
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Acknowledgements
The authors would like to thank the Coordinating Editor, Professor Robert M. Kunst and the three anonymous reviewers for their excellent and constructive comments on the previous version of this paper.
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Hailemariam, A., Dzhumashev, R. & Shahbaz, M. Carbon emissions, income inequality and economic development. Empir Econ 59, 1139–1159 (2020). https://doi.org/10.1007/s00181-019-01664-x
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DOI: https://doi.org/10.1007/s00181-019-01664-x