Inequality and Environmental Impact – Can the Two Be Reduced Jointly?

Abstract

Deterioration of the natural environment and economic inequality are profound concerns in many societies. To avoid adverse environmental side effects when implementing policies to reduce inequality, an understanding of potential conflicts of objectives is required.Different theoretical considerations suggest reducing effects of inequality on environmental impact, but also increasing ones. This paper provides empirical evidence on the environmental impact of inequality through a panel data set of 116 countries over 55 years. The multidimensionality of environmental impact is accounted for by relying on the six subindices of the Ecological Footprint.Results are discussed based on an innovative, graphical approach that allows for the assessment of effects of inequality on environmental impact based on a country's initial location within the entire observed inequality and income range. They suggest that reducing inequality levels increases carbon footprints. For surface sealing and the use of forest land, a conflict of objectives exists only in relatively rich and egalitarian countries, while there is room for jointly reducing environmental impacts and inequality in relatively poor and initially unequal countries. All results are highly robust to the estimation procedure.We conclude that, especially in richer countries, policy measures to reduce inequality need to be accompanied by policies that limit harmful environmental impacts of income redistribution in order to reduce inequality and environmental impact jointly.