Income Inequality And Environment Quality

How to achieve good and fast economic growth during the transition process is a big challenge for China, and this also becomes a hot topic in research. Since the reform and opening-up policy from 1978, China's economic growth rate has been kept at 9.8%, while some negative effects such as income inequality and environment pollution have been leaded at the same time. The income inequality is very deep so that it doesn't help to economic growth in the long-term and social harmony. And the emission of industrial pollution makes the environment quality decreased. As a result, how to form a good mechanism which coordinates economic growth and environment quality has a close relation to sustainable development. Based on endogenous theory, his paper draws a deep research on achieving sustainable development from the point view of income inequality and environment.This paper firstly test whether the Environmental Kuznts Curve is properly used in China, so that the relationship between economic growth and environmental quality can be clearly described and understood. Further, income inequality, which relates to social power inequality, financial and tax policy, human capital accumulation and creativity, individual's preference of environment quality, has an important influence on path choice of economic growth and environment quality. So this paper constructs a theoretical framework including income inequality and environment quality, then adopts China's provincial panel data from 1996-2008 to study the interaction relationship and mechanism between income inequality and environment quality. In addition, as a dominant model in economic growth, China's incentive system of local government is a key channel to understand the development track of income inequality and environment quality. Economic decentralization, as a most important incentive system, leads to the political promotion of local officials heavily relays on its economic development progress. In this situation, economic overtake behavior of local government dominates the pattern of economic growth and environment policies to a great degree. In fact, this paper further proposes the theory hypothesis about government's economic overtake behavior affecting environment, then construct environment quality decided equation and economic growth decided equation. With the basis, we measure environment quality with various indices and use three-stage OLS method to estimate the simultaneous system of equations, and acquire a robustness result finally. The main creative points lie in below:(1) Based on analyzing the development process of economic growth and environmental quality in China, this paper test whether the Environmental Kuznets Curve is existed. Through adopting the GLS method to estimate the provincial panel data from 1997 to 2009, such defects as heteroscedasticity, serial correlation and cross-section correlation can be solved. The results show that, there is an inverted U curve relationship between economic development and environmental pollution as a whole; however, such inflection values are different because of the inconsistent uses of environmental pollution indices. Furthermore, when considering the industrial structure, energy efficiency, trade openness, technical progress, investment in treatment of environmental pollution and urbanization, the inflection value of each inverted U curves always raise. That means such related factors above can lead to different features between economic development and environmental quality through acting on its mechanism.(2) From the point of human capital, we further discuss the relationship and mechanism between income inequality and environment quality, which would be the first time to do such a research. Through constructing a SEM model including income inequality and environment quality and controlling some significant explanative variables, our empirical model can reveal their relationship more clearly. With this basis, we adopt the three-stage OLS method to estimate the SEM model so that more effective results can be leaded. Considering selecting the data, this paper uses China's provincial data form 1996 to 2008. Our results reveal that income Gini coefficient has a negative relationship with industrial pollution emission, which means the increasing of income inequality can lower down the environment pollution at some extent. However, such effect is biased mechanism which results from the unsuitable pattern during the economic development process. Actually, contributing to human capital accumulation and enhancing the educational investment helps to make the environment quality better in deed. At the same time, reduction of income inequality is not only useful to technology progress, but also helpful to make people's environment desire advanced. As a result, equal income distribution and good environment quality can be achieved together. In addition, improving urbanization level also has a positive relation to pollution, that means scientific planning and institution building must be applied so that the negative effect from urbanization could be decreased.(3) During the economic development process, government behavior is key to economic growth, on another hand, it also important to some related policies design. So, government plays an important role in economic growth and environment protection. Especially in China's special institution about decentralization of powers in economic fields while centralization of powers in political fields, discussing how government behavior affects income inequality and environment quality is meaningful. In fact, this paper constructs theoretical framework from two sides, the one is characteristics and encourage of local government overtake behavior in decentralization circumstance, the other one is the effect from local government overtake behavior to environment quality. With the basis, we propose a theoretical hypothesis: in order to acquire more economic benefit and political promotion, local governments have to compete with each other. Then in the empirical testing part, this paper constructs a production model including environmental factors and a environment decided model with government behavior, and estimates them by the method of SEM and China's provincial panel data. When measuring the environment quality, this paper tries to have a comprehensive result using eight different pollution indices, such as average industrial waste water discharged, average industrial waste gas discharged. As a result, a more robustness result can be acquired. The empirical results reveal that economic overtake behavior of local government does harm to environment quality; meanwhile reduction of environment quality doesn't help to local economic growth.