Determinants of the downward sloping segment of the EKC in high-income countries: The role of income inequality and institutional arrangement

Abstract

Even among developed countries, each country has very different circumstances and political institutions regarding environmental issues. Moreover, the differences in individual attitudes about environmental issues within national borders and in the types of environmental behaviors affect the environmental policy of each country. Therefore, in contrast to the Environmental Kuznets curve (EKC) hypothesis, the effect of economic growth on environmental degradation differs between high-income countries. Evidences show that economic growth is not the only determinant of environmental change, particularly in high-income countries. In this respect, this paper examines the existence of the EKC as well as the effects of the level of political institution on the relationship between greenhouse gas (GHG) emission per capita and income inequality; it does this by using unbalanced data for 33 OECD countries from 1990 to 2014. The findings of this study show that the level of income inequality differentially affects the GHG emission depending on the level of institution. The EKC hypothesis holds only in countries with a high level of institution, and the threshold of the EKC is positioned at a lower income level in countries with stronger institutional arrangement, and such countries also show lower GHG emission per capita.

Keywords:

• Environmental degradation
• income inequality
• political institution
• environmental Kuznets curve
• greenhouse gas emission
• environmental tax

PUBLIC INTEREST STATEMENT

It has previously been widely believed that economic growth has a strong connection with environmental degradation. However, economic growth alone cannot explain all environmental issues, or why countries at the same developmental stage show different effects of economic growth on environmental degradation. Therefore, this paper provides new insights into environmental degradation as income increases by assessing how the relationship between environmental degradation and income inequality is affected by the levels of institutions. The finding of this paper demonstrates that relative income (income inequality) depends on individual preference for environmental protection, which is associated with institutional quality. In addition, the main result show that the turning point of EKC will appear at a lower level of average income when the level of institution is relatively stronger.

Declaration of Competing Interest

The author(s) declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Additional information

Funding

This research was supported by the BK21 FOUR (Fostering Outstanding Universities for Research) funded by the Ministry of Education (MOE) of Korea and National Research Foundation (NRF) of Korea.

Notes on contributors

Hyangsuk Cho

Hyangsuk Cho is a research professor of BK21 FOUR R&E Center for economics in department of economics at Korea university, South Korea. She earned a Ph.D. in economics from Sungkyunkwan university. Her research interests include environmental and resource economics, low-carbon economy and sustainable development policy.