A political economy analysis of the income inequality-CO2 emissions nexus in Canada

Our study investigates the association between income inequality and carbon dioxide (CO2) emissions in Canada, using data from 1981 to 2021. We employ the autoregressive distributed lag bounds testing approach to cointegration. The central finding is a positive long-run cointegrating relationship between changes in the share of income of the top 1% and changes in CO2 emissions. Specifically, a 1% increase in the share of income of the top 1% is associated with a 0.07% increase in CO2 emissions. This finding, which aligns with the political economy argument and the Veblen effect, has significant policy implications. One is that it underscores the importance of considering income redistribution in the context of addressing environmental degradation in Canada.