Impact of income inequality and environmental regulation on environmental quality: Evidence from China

Abstract

China’s environmental pollution is of widespread concern, and environmental governance has become the country’s main method of achieving high-quality development. Environmental quality is a comprehensive indicator, which includes many factors, such as air, water, and solid waste pollution. This study did not use a single pollutant as a substitute variable for environmental quality. Firstly, we used principal component analysis to construct a comprehensive environmental quality index. Secondly, the Stochastic Impacts by Regression on Population, Affluence, and Technology and panel quantile regression models were used with data from 30 Chinese provinces in China from 1998 to 2017 to analyze the effect of income inequality and environmental regulation on environmental quality. The constructed comprehensive index revealed that China’s environmental quality had an M-type trend over time. The mean regression results showed that income inequality and environmental regulation improved environmental quality, but higher income inequality reduced environmental quality. The panel quantile regression model results revealed that the coefficient of income inequality was positively significant at the 10–30% quantiles and negatively significant at the 70–90% quantiles. The coefficients of the absolute value of income inequality at the 10–30% quantiles were less than those at the 70–90% quantiles. This implied that higher income inequality reduced environmental quality, whereas higher environmental regulations improved environmental quality. Considering the possible impact of environmental quality on income inequality and environmental regulations, we designed a simultaneous equation model to overcome the deviation caused by bilateral causality. The conclusions of this study provide policymakers with a new perspective on environmental governance and new paths for achieving high-quality development.