A consumption-based theory of the environmental Kuznets curve

Abstract

Most theories about the inverted-U relationship between pollution and income, termed the environmental Kuznets curve (EKC), are production-side theories emphasizing pollution and abatement technologies. Production-side theories are implicitly based on the assumption of low factor mobility, and the absence of pollution as a variable in the utility function. Both assumptions are called into question by the empirical evidence of EKCs for (i) pollutants that are long-lived and not easily shiftable and (ii) regional cross-sections with free labor mobility. Hazardous waste sites are a prime example. This paper develops a stylized model of the EKC based on perfect mobility of households and labor. It represents the first attempt at developing a consumption-side model of the EKC.