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The impact of income inequality on public environmental expenditure with green consumerism

Lesly Cassin (), Paolo Melindi-Ghidi () and Fabien Prieur ()

No 2021.08, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: This article analyzes the impact of income inequality on environmental policy in the presence of green consumers. We first develop a model with two main ingredients: citizens, with different income capacities, have access to two commodities whose consumption differs in terms of price and environmental impact, and they vote on the environmental policy. In this setting, there exists a unique political equilibrium in which the population is split into two groups, that differ in the type of good, conventional vs. green, they consume. The analysis shows that a change in the level of inequality induces variations in both the size and composition of these two groups of citizens. This in turn determines whether or not more inequality stimulates the public policy. We then conduct an empirical investigation on a panel of European countries over the period 1996-2019. We find the existence of an inverted J-shape relationship between inequality and public environmental spending. This outcome can be explained by the combination of a composition effect, affecting the green group, and a substitution effect between private green consumption and public environmental spending.

Keywords: income inequality; green consumption; environmental policy; probabilistic voting; political equilibrium (search for similar items in EconPapers)
JEL-codes: D31 D72 H23 Q58 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2021-05
New Economics Papers: this item is included in nep-cdm, nep-ene and nep-env
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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