Time-varying disaggregation of the income-emissions nexus: New evidence from the United Kingdom

This paper's objective is to investigate the validity of the Environmental Kuznets Curve (EKC) hypothesis utilizing three unique approaches in this era of accelerating climate change and economic volatility. The first step is to introduce and employ a new cointegration test which allows smooth and sharp structural changes through a dummy variable and a Fourier function. Using a time-varying causality approach, the second stage is to assess the EKC hypothesis's validity for each year of a given period, as opposed to the entire period. The third stage is to conduct time-varying analyses not only of the effect of Gross Domestic Product or aggregate income on environmental degradation but also of the effects of the four major economic units' incomes, namely those of the government, non-financial corporations, households, and the rest of the world. This research derives three conclusions using the United Kingdom as a case study from 1830 to 2016. The impacts of aggregate income and the incomes of the three economic units on carbon emissions are consistent with the EKC hypothesis. Second, each of these effects occurs at different times. Thirdly, the EKC hypothesis regarding the association between the nation's trade income and carbon emissions cannot be validated. To provide policymakers with a dynamic, unit specific, and effective strategy for mitigating environmental degradation, the paper proposes testing the EKC hypothesis for each year over a specific time period, as well as for the effects of both aggregate income and the disaggregate income of four major economic units.