Identifying the impacts of income inequality on CO2 emissions: Empirical evidences from OECD countries and non-OECD countries

Abstract

The emergence of environmental quality challenges is rooted in social problems, which mainly come from income inequality and power gap. Income inequality and climate change have been highlighted as hindering the achievement of sustainable development and environmental protection globally. Though existing literature has estimated the influences of income inequality on CO2 emissions, relatively little is known about the long-run and short-run effects from a cross-national perspective. Therefore, the aim of this study is to shed light on the long-run and short-run relationships between income inequality and per capita CO2 emissions based on balanced country-level panel dataset for 78 countries from 1990 to 2017. In order to understand how a country’s economic level affects the link between inequality and CO2 emissions, this study classified the sample countries into three groups: OECD countries, low-income non-OECD countries, and high-income non-OECD countries. The FMOLS and DOLS model is applied to examine the relationship between the income inequality and per capita CO2 emission, meanwhile the estimates of an ARDL model revealed the long-run and short-run effects. Our empirical results indicate that there is a long-term cointegration relationship between income inequality and per capita CO2 emissions. Higher income inequality promotes emission reductions in OECD countries and high-income non-OECD countries, while the influences are insignificant in low-income non-OECD countries in the long run. Per capita income, carbon intensity, population size and urbanization were also considered in this study. The estimates of an ARDL model indicate that whilst income inequality does not have a significant impact on CO2 emissions in the short run, per capita national income positively affects CO2 emissions, meaning that income growth will accelerate emissions. Carbon intensity positively affects CO2 emissions in the long term, indicating that increased income facilitates increased energy use and emissions, but that progress in CO2 recycling technology may ultimately reduce emissions. Neither population size nor urbanization rate exerted any obvious effects on per capita CO2 emissions. From a policy perspective, governments have an onerous task ahead of them in balancing economic efficiency and distributary justice. Lastly, we provide insights for policy makers that in order to realize the goal of emission reductions in the long run, it may be best to proceed by making reasonable national income redistribution policies and by adjusting the welfare system.