Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: This paper analyzes if neighborhood income inequality has an effect on informal regulation of environmental quality, using census tract-level data on industrial air pollution exposure from EPA’s Risk Screening Environmental Indicators and income and demographic variables from the American Community Survey and EPA’s Smart Location Database. Estimating a spatial lag model and controlling for formal regulation at the states level, we find evidence that overall neighborhood inequality – as measured by the ratio between the fourth and the second income quintile or the neighborhood Gini coefficient – increases local air pollution exposure, whereas a concentration of top incomes reduces local exposure. The positive coefficient of the general inequality measure is driven by urban neighborhoods, whereas the negative coefficient of top incomes is stronger in rural areas. We explain these findings by two contradicting effects of inequality: On the one hand, overall inequality reduces collective action and thus the organizing capacities for environmental improvements. On the other hand, a concentration of income at the top enhances the ability of rich residents to negotiate with regulators or polluting plants in their vicinity.

Keywords: Informal Regulation, Income Inequality, Collective Action, Industrial Air Pollution Disparities, Risk–Screening Environmental Indicators, Spatial Lag Model

JEL-codes: D3; H4; Q5; R2 November 2014

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