Will low-carbon transformation cause income inequality? Empirical evidence from the low-carbon city pilot policy

Achieving carbon neutrality is a profound economic and social systemic transformation, deepening the low-carbon transition will not only promote the low-carbon development of China’s economy, but also have a remarkable impact on social issues such as fairness and income in China. Based on data from 279 prefecture-level cities in China, this study calculates the income inequality index of China’s cities using nighttime light data at the district and county levels, and empirically estimates the impact of China’s Low Carbon City Pilot Policy (LCPP) on income inequality using the difference-in-differences model.  

The key contributions of this study are as follows: First, we accurately measure income inequality in cities based on the unique dataset constructed by nighttime light data. Second, through sufficient theoretical model construction and derivation, this study presents an in-depth discussion of the theoretical mechanism of the impact of LCPP on income inequality from two perspectives: demand-side skill-biased technological progress (SBTP) and supply-side upgrading of labour skill structure (ULSS).

The study shows that the LCPP can significantly reduce income inequality in cities; it affects cities’ income inequality through the SBTP and the ULSS, but the mitigating effect of the LCPP on income inequality is mainly due to its improving effect on ULSS. Moreover, we show that the impact of the policy on income inequality is heterogeneous across geographic locations, resource endowment, and labour skills, and further research shows that the policy improves the welfare of residents.

Our findings provide useful implications for promoting low-carbon transformation and fair income distribution.

Read the full article on Urban Studies OnlineFirst here.