The Relationship Between Income Inequality and Enviromental Degradation: A Study on the European Union Countries

Abstract

The relationship between income levels and environmental indicators has been studied in the literature by various scholars. However, lesser attention has been paid to the relationship between income inequality and environmental degradation. This thesis aims to identify the relationship between income inequality and environmental degradation using the data between 2005 and 2018 for EU member countries. Panel data analysis has been applied for 28 countries to analyze the relationship. Alternative income inequality indicators such as Gini coefficient, income share of the top 10%, S80/S20 ratio, income share of the bottom 40%, and the Palma ratio have been used for the income inequality as key independent variables along with the other independent variables. The dependent variables of this thesis that have been used mainly for the different base models are greenhouse gas emissions per capita and ecological footprint per capita. This thesis focused on determining whether there is a robust relationship between income inequality and environmental degradation while examining the relationship between. As a result of Driscoll Kraay's robust error estimator, a negative relationship between income inequality and environmental degradation has been found. Accordingly, for the greenhouse gas emissions and ecological footprint, there was a negative relationship between the Gini coefficient, Palma ratio, and income share of the top 10%, while a positive relationship was observed for the bottom 40%. Although, S80/S20 ratio was insignificant for greenhouse gas emission, there was a negative relationship between ecological footprint. Additionally, real GDP per capita positively affected both indicators, while urbanization and human capital negatively. A positive relationship between the manufacturing ratio, final energy consumption, and energy intensity has been shown with the greenhouse gas emissions. Only energy intensity positively affected the ecological footprint per capita apart from manufacturing ratio and final energy consumption.