The nonlinear dependence of income inequality and carbon emissions: Potentials for a sustainable future

Understanding the interconnected nature of rising carbon emissions and income inequality is crucial to achieve social and ecological sustainability. We contribute to the literature with a systematic analysis of the conditional interdependence by means of a distributional copula model. The model estimates the nonlinear dependence between a country's GINI coefficient and CO2 emissions across and within country income groups. This enables us to uncover complex interdependencies that standard linear regression techniques might hide. Using an unbalanced panel data set of 109 countries from 1960 to 2019, composed of different data sets, we show that dependence is related to the prevailing consumption level, energy sources, the structure of the economy and the political system with heterogeneous effects across country income groups. To estimate the potentials for a sustainable future, we define thresholds of potential social and environmental sustainability. We find that richer countries are furthest away from this, but have the highest potential for realizing the defined sustainable space. This further highlights the importance of the service sector and combined policies targeting social and environmental sustainability.