Can economic growth coexist with environmental sustainability? This research examines the empirical relationship known as the environmental Kuznets curve (EKC), which suggests that pollution increases and then decreases as per capita income rises. The paper analyzes the role of the income elasticity of demand for environmental quality in shaping this inverted U-shaped relationship. By decomposing the effect of income on pollution, the study demonstrates that preferences consistent with a positive income elasticity of demand for environmental quality are neither necessary nor sufficient for the EKC. Increasing pollution may occur alongside rising income, even with preferences for high environmental quality. Conversely, pollution may decrease with preferences that place lower values on pollution reduction. These findings challenge popular models of the EKC and highlight the complex interplay between economic factors and environmental preferences. Ultimately, this research contributes to a more nuanced understanding of the conditions under which economic growth can align with improved environmental outcomes.
Published in Environment and Development Economics, this paper fits squarely within the journal’s scope by examining the interplay between economic development and environmental quality. The analysis of the environmental Kuznets curve and the role of income elasticity directly addresses key topics in environmental economics. The paper's theoretical framework and policy implications make it a relevant contribution to the journal's audience of researchers and policymakers.