The effect of income inequality on carbon dioxide emissions: A case study of Indonesia

The main objective of this study was to investigate the effect of income inequality on carbon dioxide (CO₂) emissions in Indonesia from 1975 to 2017 using the Autoregressive Distributed Lag (ARDL) technique. Per capita GDP, urbanization, and dependency ratio are included as additional variables in the analytical models. The statistical estimation and tests showed that income inequality has a negative effect on CO₂ emissions but the relationship pattern depends on the level of per capita GDP. An inverted U-shaped relationship was also observed between per capita GDP and CO₂ emissions. This indicates the existence of an Environmental Kuznets Curve (EKC) in Indonesia. Moreover, both urbanization and the dependency ratio have a negative effect on CO₂ emissions. This study suggests that income equality should be added to the policies formulated to aid economic growth in order to ensure that there is a reduction in CO₂ emissions.