The impact of income inequality on environmental quality: a sectoral-level analysis

Abstract

Many studies in the literature examine the income inequality-environment nexus at the country level. In this paper, we argue that the impact of inequality on sectoral emissions might vary and should be examined by considering sectoral-level differences. We focus on 28 OECD economies and use DOLSMG, BA-OLS, and CUP-FM estimators. Our findings reveal that a cointegration relationship exists among the series in the long run, indicating that both income and income inequality are crucial factors in sectoral emissions. The estimates show that a 1% increase in the Gini index leads to an increase in emissions from the power and building sectors by about 1.4%. On the other hand, a 1% rise in the Gini index positively contributes to the environment in the transport, other industrial combustion, and other sectors by about 0.05%, 0.05%, and 0.02%, respectively. Policies aimed at reducing carbon emissions should be designed at the sectoral level.