The income inequality-CO2 emissions nexus: Transmission mechanisms.

Income distribution and environmental degradation represent two of the most important goals in the SDGs (Sustainable Development Goals). However, the linkage between income inequality and carbon emissions remains controversial. Relying on a large set of cross-country panel data (217 countries from 1960 to the latest), this paper contributes to the literature by using the instrumental variable approach to estimate the causal impact of income inequality on carbon emissions and exploring the underlying transmission mechanisms. Our modelling results indicate that there is a trade-off between income inequality and CO 2 emissions. And the underlying mechanisms include (1) diminishing marginal propensity to emit (DMPE) coupled with the economic law of diminishing marginal propensity to consume (DMPC); (2) high income inequality induces increases in R&D expenditure, leading to reductions in CO 2 emissions; (3) political freedom does not significantly affect the relationship between income inequality and CO 2 emissions. • This paper estimates the impact of income inequality on carbon emissions and exploring the underlying transmission mechanisms, relying on panel data across 217 countries from 1960 to the latest. • Baseline and IV estimation results suggest that there is a trade-off between income inequality and CO 2 emissions. • Political freedom does not significantly affect the relationship between income inequality and CO 2 emissions. • Rising shares of low-income groups lead to higher CO 2 emissions while rising shares of high-income groups contribute to lower CO 2 emissions. • Rising income inequality can decrease energy consumption and increase R&D expenditure, which in turn help to decrease CO 2 emissions. [ABSTRACT FROM AUTHOR]