N°23-54: Green Finance and Inequality

This paper provides empirical evidence for a significant positive association between green finance and top income inequality from a panel of 87 countries from 2004 to 2020. This relationship is strongest for countries with initially lower levels of income, low levels of financial development, and low levels of carbon emissions. We also find evidence that the effect on inequality persists for four years and thereafter abates. We argue that the association between green finance and inequality is at least partially driven by two mechanisms: technological change and investment emissions. Using a moderated mediation design, we show that technological change and investment emissions are partially mediating the relationship between green finance and top income inequality.