The Role of Education and Income Inequality on Environmental Quality: A Panel Data Analysis of the EKC Hypothesis on OECD Countries

This study examines the impact of education on the pollution–income relationship, control-ling for income inequality in 17 European OECD countries over the period 1950–2015. We developed a novel two-stage algorithm, whose first step consists in applying clustering techniques to group countries according to the income inequality temporal pattern. In the second step, we estimate the educational-mitigated EKC hypothesis (Educational EKC) by employing panel regression techniques accounting for endogeneity issues. The clustering findings suggest the existence of high variability in income inequality levels across countries and heterogeneous development patterns. Empirical estimates highlight that, for high income inequality countries, the Educational EKC hypothesis holds, and that the emissions–income elasticity appears to decline when including the schooling level. In the low income inequality cluster, these effects are not clear-cut. For these countries, we propose a different specification of the EKC, which substitutes the income per capita term with the years of schooling. The new specification is statistically validated for both high income inequality and low income inequality countries. In conclusion, we can state that education should be addressed as a crucial cornerstone to shaping the EKC curve.