Does reducing income inequality promote the decoupling of economic growth from carbon footprint?

Abstract

Mitigating climate change, improving economic growth, and reducing income inequality are three of Sustainable Development Goals (17 SDGs). It has been well understood that economic growth has a significant impact on carbon footprint, but it remains unclear whether this impact will be mitigated or intensified by reducing income inequality. By applying the Multi-Regional Input-Output model, this study assesses the consumption-based carbon footprints of 43 major economies over the period 1995–2019 and conducts the corresponding empirical analysis. Through examining the moderating effect of income inequality (Gini coefficient) on the relationship between economic growth (GDP per capita) and consumption-based carbon footprint (CO2 per capita), we demonstrate that a lower Gini coefficient – a more equitable distribution of income − could significantly promote the decoupling of economic growth from carbon footprint. The results also show a heterogeneous moderating effect of income inequality – reducing income inequality in rich countries helps decouple economic growth from carbon footprint more than in poor countries. This study contributes to a better understanding of the synergy among economic growth (SDG 8), income inequality reduction (SDG 10), and carbon mitigation (SDG 13). Given that reducing income inequality in the context of economic growth can have significant benefits for carbon mitigation, we would suggest that income inequality reduction should be incorporated into climate action, particularly in rich countries.