Income Shocks and Demand for Sustainable Products

Miguel Ferreira, Pedro Pires, Margarida Soares and Trindade, André

No 20465, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: As consumer and investor demand for sustainability rises, firms are expanding their portfolios to include more sustainable products. This paper investigates whether such firms, as a result, become more exposed to household income shocks. Using U.S. retail scanner data, we find that declines in household income significantly reduce the share of spending on sustainable products—especially among high-income households. These results are robust to alternative sustainability classifications and cannot be fully explained by health considerations. To help identify causal effects, we exploit exogenous variation in household income arising from the timing of tax rebate disbursements under the 2008 Economic Stimulus Payments program. A structural demand model indicates that the effect is driven by both high-income consumers’ lower price sensitivity and a stronger preference for sustainable products, irrespective of price. Our findings suggest that firms focusing on sustainable offerings may face greater demand volatility during income downturns, highlighting trade-offs in aligning business strategies with sustainability goals.

Keywords: Sustainability; Environmental; Social; Household finance; Consumption (search for similar items in EconPapers)
JEL-codes: D12 E21 G32 G50 M14 (search for similar items in EconPapers)
Date: 2025-07
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