Examining the link between load capacity and income inequality: evidence from OECD countries

Income inequality represents one of the most pertinent issues in economics, exerting a profound influence on all economic and socio-economic relationships. The relationship between income inequality and environmental concerns has been insufficiently explored in academic literature. To address this gap, this study employs Pedroni and Westerlund co-integration tests in conjunction with the panel autoregressive distributed lag (ARDL) model and incorporates Dumitrescu-Hurlin (Economic Modelling, 29:1450–1460, 2012) panel causality tests to analyse the relationship between income inequality and environmental factors in OECD countries from 1990 to 2020. The analysis examines Gross Domestic Product (GDP) per capita, trade openness, renewable energy consumption, and the Gini coefficient as key variables. Co-integration tests confirm the existence of co-integration among the analyzed variables. The results of the panel ARDL model indicate that income inequality has a negative short-term impact on the load capacity factor, while renewable energy consumption exerts a positive long-term influence on the load capacity factor. Moreover, the findings of this study demonstrate that both trade openness and economic growth exert a significant impact on load capacity factor, both in the short and long term. An increase in income disparities can potentially result in an increase in short-term environmental degradation. Conversely, in the long term, an increase in renewable energy consumption is positively correlated with environmental degradation. In light of these findings, this study makes a significant contribution to our understanding of the complex relationship between income inequality and environmental concerns, offering valuable insights for policymakers and researchers alike.