Will low-carbon transformation cause income inequality? Empirical evidence from the low-carbon city pilot policy

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As a profound systemic economic and social transformation, the deepening of China’s low-carbon transformation will inevitably have a remarkable impact on social issues such as income and equity. Based on panel data consisting of 279 cities in China between 2007 and 2020 and theoretical modelling and derivation, this study constructs an income inequality index of cities in China using district- and county-level nighttime light data, and empirically estimates the impact of China’s pilot policy for low-carbon city on income inequality using a difference-in-differences model. In this study, through empirical analyses, we found that: (i) the pilot policy can significantly reduce income inequality in cities; (ii) the mechanism analysis illustrates that the policy affects cities’ income inequality through the demand-side skill-biased technological progress and the supply-side upgrading of labour skill structure, and the mitigating effect of the policy on income inequality is mainly due to its enhancing effect on the upgrading of labour skill structure; (iii) heterogeneity research demonstrates that the impact of the policy on income inequality is heterogeneous in terms of geographical locations, resource endowment and labour skills; and (iv) further research shows that the policy improves the welfare of residents. Our findings provide useful implications for promoting low-carbon transformation and fair income distribution in cities.