Global patterns in carbon dioxide (CO₂) emissions: understanding the economic growth and income inequality connection

This paper explores the complex interplay between income inequality, economic growth, and carbon dioxide emissions. We use panel data from multiple countries for the years 1971-2021 to examine how income inequality and economic growth influence carbon dioxide emissions. Our results provide support against the trade-off between income inequality and carbon dioxide emissions. We lend support to the ‘consumption hypothesis’ under which people with lower incomes might be forced to consume cheaper, high emission intensity products, but as income levels rise, people may care more for the environment and prefer environmentally friendly products, as suggested by the ‘political process effect’. Moreover, we find support for the inverted U-shaped relationship between economic growth and carbon dioxide emissions, lending support to the Environmental Kuznets Curve (EKC) hypothesis. We find the turning point of this relationship to be $4,658. We also find evidence of the positive effect of income inequality on carbon dioxide emissions increases with rising GDP per capita.