Income Inequality, Household Consumption and Co₂ Emissions in China

This paper analyzes the relationship between household income disparity and CO 2 emissions based on a panel dataset in China over the period from 1995 to 2010 by employing a two-step, generalized method of moments estimation (GMM-3SLS estimator) to estimate the simultaneous equation model (SEM). The main findings of this study reveal that there is a U relationship between per capita CO 2 emissions and income in China. The indirect effect that household income inequality affects CO 2 emissions through household consumption is positive. The reasons for this positive effect are as follows: (1) an increase in household income inequality results in lower consumer demand and higher scale of investment, which leads to excess capacity, a rise in the waste of energy consumption and an increase in CO 2 emissions. (2) The total consumption amount is inhibited and the consumption structure is influenced by household income inequality. The energy-intensive and low-quality-preferred consumption structure is an obstacle to the upgrading of the industrial structure and to technological innovation from the demand side. Thus, reducing CO 2 emissions by upgrading the industrial structure and developing energy-saving technologies is inhibited by the consumption structure.