Air pollution and income distribution: evidence from Chinese provincial panel data

In recent years, air pollution has caused an increasing number of problems in China. Individual health and labour productivity, which are affected by air pollution may affect income distribution. Therefore, this article will analyse the effect of air pollution on income distribution. We investigated the evolution of air pollution in China over the past two decades. Fixed-effects and random-effects estimation approaches were used with data from 30 provinces in China from 1998 to 2017 to analyse the effect of air pollution on income distribution. Empirical results reveal that air pollution significantly worsens income distribution in China. Then we explored the mechanism by which air pollution affects income distribution, and found that increasing health expenditures and declining labour productivity mediate the effect of air pollution on income distribution. Considering the potential endogenous problems of air pollution affecting income distribution, the simultaneous equation model and the instrumental variable approach are employed to overcome endogenous bias. Traditional mean regression was empirically found to overestimate the impact of air pollution on income distribution. Finally, some policy implications are proposed to improve air quality and income distribution.