Comparison of the Effect of Income Inequality and Petrol Quotas on Carbon Dioxide Emissions in Iran

Income distribution and environmental destruction represent two of the most important goals in the Sustainable Development Goals. However, the linkage between income inequality and carbon emissions remains controversial especially in countries with natural oil and gas resources. This paper studies the link between carbon dioxide (CO2) emissions and income inequality in Iran over 1985–2020. The modelling results indicate that there is a trade-off between income inequality and CO2 emissions. By applying the Vector Auto regression approach found a direct relationship between Gini coefficient and CO2 emissions and indirect relationship between petrol price and CO2 emissions. Petrol price have a smaller although negative impact on CO2 emissions compared to the positive effect of inequality. To investigate the effect of shocks, Impulse response checked out. According to the variance decomposition, income inequality after carbon dioxide emissions is the most explanatory change in gas emissions among other variables. This paper presents a positive effect of petrol price shocks on carbon dioxide emissions, and also negative effect on carbon dioxide emissions in long term.