Effect of Income Distribution on the Environmental Kuznets Curve

Abstract

This paper augments the model of Andreoni and Levinson by analyzing the effect of income distribution on the inverted U‐shaped relationship between some forms of pollution and income, the so‐called ‘environmental Kuznets curve’. In a context in which pollution abatement technology shows increasing returns to scale and an inverse U‐shaped pollution–income path is present, this study demonstrates the existence of a majority voting equilibrium, and concludes that the inverted U‐shaped relationship is between median income and environmental degradation rather than between per capita income and environmental degradation. Our results suggest that an increase in equality in income distribution improves environmental quality and social efficiency. The implication of the model for the empirical estimation of environmental Kuznets curves is examined using a panel data set of 36 countries over a 20‐year period. Estimation results using different models show that income distribution might be an important factor in the empirical estimation of these curves.