Income redistribution and carbon emissions in Portugal

Abstract

Portugal’s income tax system is very progressive and has a greater redistributive effect than the European Union average. This progressive income redistribution, however, comes at a cost to the environment. This note finds that—using Portuguese time series data over the period 1970–2018—income redistribution increases carbon dioxide emissions in the long run. This is consistent with the theoretical literature, which suggests that redistributing income increases consumption among the bottom class group (and thereby emissions). We propose some policy recommendations to help policymakers find a balance between social equity and climate goals. In addition, this note also shows that the most common proxy of income redistribution used in the empirical literature may be inappropriate and lead to false conclusions.