Impacts of Income Inequality and Economic Growth on CO2 Emissions: Comparing the Gini Coefficient and the Top Income Share in OECD Countries

Abstract

This study investigates the nexus of income inequality, economic growth, and CO2 emissions based on the environmental Kuznets curve (EKC) hypothesis for 38 OECD countries during 1990–2015. The indices of income inequality include the Gini coefficient and the top income share. The main objective of this study is to re-examine the effects of income inequality and economic growth on CO2 emissions based on the Environmental Kuznets Curve (EKC) hypothesis. The panel analysis for OECD countries is examined using country fixed effects and Granger causality including pre-tests for unit root, cointegration, and stationarity. The main findings of this study are as follows. First, the effects of economic growth on CO2 emissions have an inverted U-shaped relationship, and the effects of income inequality on CO2 emission also have an inverted U-shaped relationship. Second, the Gini coefficient and the top income share represented by the income inequality index are well-defined tools for analyzing the relationship between income inequality and environmental degradation. Third, the increase in trade dependency and renewable energy consumption has contributed to the decrease in CO2 emissions, but the increase in energy use has led to an increase in CO2 emissions. Finally, economic growth and income inequality have Granger causality for CO2 emissions, and economic growth bi-directionally causes Granger causality for income inequality. Therefore, this study suggests that resolving income inequality is crucial and another important environmental policy that affects CO2 emissions.