The impact of renewable energy consumption on income inequality: Evidence from developed countries

Abstract

Despite of the great number of studies on the impact that income gap has on the environment, we still do not know much about whether renewable energy could be a factor affecting income inequality. The goal of this study is therefore to investigate the impact of renewable energy consumption on income inequality in a panel group of developed economies over the period 1990–2014. To this end, the study employs two dynamic panel data estimation techniques: (i) panel generalized method of moments in which slope coefficients are not allowed to vary, and (ii) the dynamic common correlated effects estimator in which heterogeneity and cross-sectional dependence is taken into consideration. The results obtained from the both estimators indicate that an increase in renewable energy consumption leads to a decrease in income inequality. Beyond the environmental concerns, this result confirms that adoption of renewable energy sources will also play a crucial role in reducing income inequality. In addition, it is also proved that the role of renewable energy consumption on income inequality is robust to estimation technique. Policy implications of these results are also discussed.