The emission-inequality nexus across stages of development

Does a more unequal society emit more CO2? The nexus between carbon emissions and income inequality has been at the core of a vast literature, which has yielded conflicting results. Leveraging panel econometric techniques, we provide robust evidence of a non-linear relationship that depends on the structural composition of the economy. Specifically, we document a positive association between income inequality, measured with five different indicators, and per capita carbon emissions in highly tertiarized countries. In contrast, the relationship in non-service-intensive economies turns negative. We provide evidence for plausible mechanisms mediating this non-linear association: the carbon footprint of the richest individuals–particularly when linked to investment–and the employment share in industry are key factors underlying the observed patterns. Our results point to the stage of "development" as a crucial factor shaping the emission-inequality nexus. Indeed, it helps identify countries for which fighting inequality comes with climate-related benefits.