Association for Public Policy Analysis & Management

Two of the biggest global challenges we face today are mitigating climate change and economic inequality. Despite the rapidly growing number of studies that have investigated the inequality–emissions nexus, the evidence provided by existing studies is somewhat inconclusive and mixed, depending on sample, time periods & econometric techniques.

It is now established that economic development is a prerequisite for moving people out of poverty. However, such economic development would also imply a shift in the proportion of GDP contributed by movement from agriculture to industries. With a growing proportion of industries which would be based on carbonaceous feedstocks for energy and raw materials, one would expect the carbon emissions to increase significantly as these countries try to bring more of their population above the poverty line. Does the distribution of income affect carbon dioxide (or greenhouse gas) emissions? Does this relationship depend on the level of economic development? The objective of the paper will be to seek and explain answers to these questions, which have important implications for economic and environmental policies.

One implication of the Kuznets Curve hypothesis could be that countries may have different relationships between inequality and emissions depending on the stage of their development in the time period under consideration. One would expect that developed countries would have a reducing effect of inequality and emissions while the relationship could be very different for developing ones. This paper, therefore, considers 2 sets of countries in a given time period – one set in which all countries are a high stage of development and another in which the countries are still growing and moving towards an industrial economy.

I shall use two panel data sets and compare: the 16 original OECD countries in 1957 and a second panel of 16 countries (N-16), comprising the BRICS and Next-11 countries which had more rapid industrial growth since 1990. The panel data sets are developed for 1990-2015, from the beginning of the new globalized world order to the Paris Agreement. The panel data analysis also addresses an overlooked issue of correlation between energy and emissions. In addition, while the traditional analysis has considered only CO2 as the emissions, I examine total greenhouse gases as well. There are certain sectors of the economy which might have a higher impact on these emissions.

I also examine another interesting variation would be to account for the fact that many high-income countries apply strong redistributive policies, which lead to overall lower after-tax income inequality than before tax income inequality. I use after-tax income inequality measure (the post-tax Gini index) to see the effects of redistributive policies already in place. Another measure to ensure robustness is to use the income inequality deciles and the share of income held by the top 10% of a country’s population.

This paper addresses a gap in the literature where the effects of inequality get concealed, become imperceptible or even manipulated by the non-consideration of stages of economic development in the time period under study.