Background: Despite the detrimental environmental and distributional effects of economic activity in Iran, these effects are not uniform across provinces. Environmental degradation and income inequality are increasing in some provinces of Iran. This study aimed to determine the causal relationship between environmental degradation and income inequality in provinces. It investigates whether environmental degradation is a cause or consequence of income inequality.
Methods: Data were collected from official statistical publications in Iran. Then, two simultaneous regression models were estimated to investigate the causal relationship between environmental degradation and income inequality. Finally, Granger causality tests were performed to verify the results.
Results: The results show a one-way causality from income inequality to environmental degradation, and environmental degradation is not the cause of income inequality. While income inequality leads to environmental degradation, other factors are at play in causing income inequality. Income inequality, per capita gross domestic product (GDP), and industrial structure increase environmental degradation. Energy intensity, education, and environmental government budget reduce environmental degradation. Environmental degradation, education, and per capita GDP negatively impact income inequality, while the environmental protection budget and taxation worsen income inequality.
Conclusion: To reduce environmental pollution and income inequality, policies should be adopted that aim to improve the level of education, increase per capita income, increase the budget for environmental protection, reduce polluting industrial structure, and reduce energy intensity. Also, attention should be paid to better management and improvement of the quality of life in different regions of the country to improve the compatibility of different parts of the society with the environment.