The Economics of Inequality and the Environment

Environmental degradation and economic inequality are two of the defining challenges of the twenty-first century. We synthesize conceptual mechanisms that underpin inequality–environment linkages and take stock of the relevant empirical evidence. We propose three channels of interaction. We first describe how environmental benefits vary with household income. Second, we discuss how the cost of environmental policy is distributed across households. Third, we consider how income inequality and redistribution shape environmental outcomes. The three channels determine how both environmental quality and economic inequality matter for policy appraisal. We argue that it is crucial to consider inequality–environment linkages in economic research and policy design, as neither issue can be fully understood in isolation. We close by highlighting future research needs. (JEL D31, D63, H23, Q54, Q56, Q58)