1. Environmental Kuznets curve and green regulation
- Author:
- Luca Bettarelli, Davide Furceri, Prakash Loungani, Jonathan D. Ostry, and Loredana Pisano
- Publication Date:
- 04-2025
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In this paper, we first test the validity of the Environmental Kuznets Curve (EKC) hypothesis, using a large sample of approximately 190 advanced and developing countries, over a period of 34 years (1989– 2022). We find that (CO2) emissions respond positively to increasing income per capita, up to a turning point of approximately US$25,000. In a departure from the previous literature, we allow the relationship between economic development and emissions to depend on the stringency of environmental regulation. Our results indicate that environmental policies—and particularly market-based instruments, such as carbon taxes and emissions trading systems—make the EKC lower and flatter. These results are robust to several sensitivity checks, and to the use of regional (rather than global) data. Overall, our results have important policy implications, as they identify economic development as a pathway to environmental improvements. Moreover, we show that environmental policies are an essential means to achieving decoupling of emissions and economic output over the longer term.
- Topic:
- Climate Change, Carbon Tax, Decoupling, and Environmental Kuznets Curve (EKC)
- Political Geography:
- Global Focus