Income inequality and the environment: aggregation bias in environmental Kuznets curves

The environmental Kuznets curve assumes an inverted U-shaped relation betwe en environmental damage and per capita income. Recently it has been argued in the literature that in addition to income levels, the inequality in the distribution of power and income is (positively) related to environmental d egradation. We provide an additional argument, based on simple aggregation, for including a measure of income dispersion in empirical analyses. When t he relationship between environmental damage and household income is concav e (e.g. resembles an environmental Kuznets curve), then income inequality i s negatively related to total environmental damage. Results from an empiric al analysis of cross-national variation indicate that the aggregation effec t can run counter to and outweigh the political economy effect for some env ironmental indicators. (C) 2001 Elsevier Science B.V. All rights reserved.