 |
This article analyzes the impact of income inequality on environmental policy in the presence of green consumers. We first develop a model with two main ingredients: citizens with different income capacities have access to two commodities whose consumption differs in terms of price and environmental impact, and they vote on the environmental policy. In this setting, a unique political equilibrium exists in which the population is split into two groups that differ in the type of good, conventional vs. green, they consume. The analysis shows that a change in the level of inequality induces variations in both the size and composition of these two groups of citizens. In turn, this determines whether or not more inequality stimulates public policy. We then conduct an empirical investigation on a panel of European countries over the period 1996–2019. We find the existence of a reversed-J−shaped relationship between inequality and public environmental spending. This outcome can be explained by the combination of a composition effect, affecting the green group, and a substitution effect between private green consumption and public environmental spending.
