Understanding the relationship between income inequality and pollution: A fresh perspective with cross-country evidence

This paper uses a novel approach to re-examine the relationship between income inequality and pollution and shows that protecting the environment can have an added advantage of creating a just and inclusive society. Pollution threatens health and livelihoods of vulnerable groups, in turn making them even more vulnerable, creating a vicious cycle. We investigate if sustainable environmental policies can mitigate the impact of pollution on these vulnerable groups, while addressing inclusion. The novel methodology provides an estimate of the inequality-pollution relationship for every country-year observation, allowing us to examine the relationship of interest for various country groups, using a panel data of 129 countries during 1990–2014. It also deals with model mis-specification bias as well as bias from endogenous regressors. Our results indicate, pollution increases inequality in countries with above average GDP/capita or below average natural or human capital. These results are sensitive to a country's stage of development and should be of particular interest to scholars and policy makers of the Asian-Pacific region, where lately rapid industrialization and urbanization is a driving force behind an upward trend in environmental pollution.