Abstract
The effect of economic growth on pollution emissions differs substantially among high-income countries. I address this issue by analyzing public environmental policy decisions. Individual heterogeneity, relative income effect and the political framework in which policy decisions are taken determine the emergence of the downward sloping segment of the Environmental Kuznets Curve (EKC). Income inequality produces a gap between the country’s ability to pay for environmental protection and a country’s willingness to pay. I test this result by using OECD data on public R&D expenditure for environmental protection. The conclusion is that contrary to the EK hypothesis, moments of the income distribution function other than the mean may be important for the emergence of a virtuous path of sustainable growth in high-income countries.
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