Income inequality, financial development, and ecological footprint: fresh evidence from an asymmetric analysis

The emerging environmental concerns are entrenched in social issues, largely stem from income differences and power disparity. Income distribution and environmental disruption are increasingly pointed as obstacles in securing sustainable development goals and environmental preservation. The existing empirical studies have explored the environmental pollution impact of income inequality. However, the results are conflicting, and little attention has been paid to explore the short and long-run environmental impacts from a national viewpoint. Similarly, the role of aggregate income and financial sector for environmental quality has attracted considerable attention and many studies have provided conflicting empirical evidence. The literature generally ignores the importance of relative income in explaining environmental outcomes and also assumes symmetric association, ignoring asymmetric shocks. The present study explores the role of nonlinear associations in forming the links between income distribution and environmental quality using linear and nonlinear autoregressive distributed lag models from 1972 to 2018. The study follows the extended environmental Kuznets curve (EKC) approach. The results suggest that inequality promotes environmental pollution. Further financial development also escalates carbon emissions. The nonlinear analysis confirms the asymmetric effect of inequality on ecological footprint. The EKC, however, is not validated for Pakistan. The results suggest important policy implications.