Income and wealth inequalities as limits to the CO2-reducing effects of public green expenditure: Evidence from OECD countries
This study investigates the effects of government expenditure on environmental protection on the growth rate of carbon emission intensity, measured by the CO2/GDP ratio, using an annual panel of 25 OECD countries from 1995 to 2021. To assess whether distributive conditions shape the effectiveness of environmental fiscal policy, three nonlinear models are estimated using alternative threshold variables representing different dimensions of inequality: disposable income inequality (Gini coefficient), wealth concentration (top 0.1% wealth share), and average real wages, controlling for labor productivity. These variables divide the sample into lower- and higher-inequality regimes. The results indicate that the effects of the public spending on environmental protection is only statistically significant under more equitable distributive conditions. A 10% increase in government expenditure on environmental protection reduces the growth rate of emission intensity by approximately 0.52% in the fifth period after the shock under lower disposable income inequality, by 1.86% when wealth concentration at the top of the distribution is lower, and by 0.23% as early as the second period under higher real wages, controlling for labor productivity. Overall, the findings suggest that the distributive profile is an important factor shaping the environmental effectiveness of public spending.
