Beyond normative system boundaries in life cycle assessment: The environmental effect of income redistribution

The current practice for assessing the environmental life cycle impacts of a product system is limited to the activities that respond directly to a change in demand. The revenue resulting from this change in demand is then used to pay for primary factors, such as wages and taxes, while the redistribution of that money is left outside the system boundaries. The aim of this paper is to address this limitation by providing a method in which the second order effects, i.e., the effects of re-spending that money, are included. For that, an income distribution model based on a simplified stock-flow consistent framework was developed. The method is applied in a closed economy consisting of six industries, banks and three household income groups. The dynamics of the income redistribution effects are studied throughout the rounds of (re)distribution, showing that the perturbation has a permanent effect on the economy, from environmental and social perspectives, and major changes occur in the first period of distribution. In addition, the paper also provides insights on the next steps for developing a full-scale model and discussions on the relationship between income distribution and productivity growth.