INCOME INEQUALITY, HOUSEHOLD CONSUMPTION AND CO2 EMISSIONS IN CHINA

Abstract

This paper analyzes the relationship between household income disparity and CO2 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 CO2 emissions and income in China. The indirect effect that household income inequality affects CO2 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 CO2 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 CO2 emissions by upgrading the industrial structure and developing energy-saving technologies is inhibited by the consumption structure.