The effect of income inequality and energy consumption on environmental degradation: the role of institutions and financial development in 180 countries of the world

This study investigates the effect of income inequality and institutional quality on carbon emission in 180 countries of the world from 2002 to 2019. The study employed OLS, fixed effect, and system generalized method of moments (SGMM), and the results show that income inequality, institutional quality, financial development, and economic growth have a direct significant and positive effect on carbon emission while trade openness and renewable energy significantly reduce carbon emission. VOA, ROL from the legal system, and GOV from the political system negatively affect carbon emission while the interaction term between GDP and GINI is found negative for carbon emission while the interaction of FD and GINI, INST and GINI, FD, and GDP are positively linked with carbon emission. The EKC hypothesis has been evidenced in the analysis with all INST indices. Our findings have considerable policy implications for the sample countries regarding the income inequality and institutions' development toward environmental quality enrichment.

Automated summary

This study found that income inequality, institutional quality, financial development, and economic growth increase carbon emissions, while trade openness and renewable energy decrease carbon emissions. Additionally, the quality of justice, democracy, and government has a negative impact on carbon emissions. The EKC hypothesis was confirmed across all indices.