This article analyzes the impact of income inequality on environmental policy in the presence of green consumers. We develop a theory with three main ingredients: first, citizens have different income capacities; second they have access to two different commodities whose consumption differs in terms of price and environmental impact, and third, they have to vote on the environmental policy. In this setting, there exists a unique political equilibrium such that the population is split in two groups, depending on whether there is positive consumption of the green good. The analysis shows that higher income inequality is generally associated with lower public spending in environmental protection. We then test this prediction in a fixed-effect model with robust standard errors using a panel of European countries over the period 1996-2019. We indeed find that income inequality negatively affects both public expenditures in environmental protection.
Voting for environmental policy with green consumers: the impact of income inequality
17 February 2021