Income Inequality and Environmental Degradation in Middle-Income Countries: A Test of Two Competing Hypotheses

The relationship between income inequality and environmental degradation is still a global concern of empirical research. In this study, two main hypotheses concerning this relationship are tested using data from a panel of 42 middle-income countries (MICs) over the period 1990–2016. The results adopted from two different methodologies based on panel quantile regression techniques emphasize a trade-off relationship between inequality and environmental degradation, which supports the marginal propensity to emit (MPE) hypothesis rather than the political economy (PE) hypothesis in understanding the impact of inequality on environmental degradation in MICs. This finding leaves policymakers in MICs facing a difficult choice: either reducing inequality or improving the environment because the two goals are not achieved simultaneously according to the results. The results also confirm the existence of the environmental Kuznets curve (EKC) across all quantiles. The effect of economic growth in MICs turns to improve environmental indicators in the long run. Accordingly, the study recommends that MICs give priority to reducing income inequality to ensure the continuity of achieving economic growth that improves environmental indicators in the long run, according to the EKC.