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.

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