**2. Review of selected literature**

In earlier literature, income inequality and environmental pollution are byproducts of economic development and growth. The Kuznets Curve theory is often used to describe the relationship between income inequality and economic growth whilst the Environmental Kuznets Curve (EKC) is used to describe the relationship between environmental pollution which is normally captured by carbon dioxide (CO2) emission. The original Kuznets Curves hypothesized an inverted U-shaped association between economic growth and income inequality. The main assumption of this model is that at earlier stages of economic development income inequality is

expected to increase as income levels increase. After reaching a certain threshold or inflection point, economic growth would lead to lower inequality as more redistribution takes place. This model implies that sustained economic growth and development would eventually reduce the problem of income inequality [6]. This model has been empirically tested extensively using different estimation methods, different sample periods, and a different sample of countries. Kuznets hypothesis was present in regional and country-specific studies, such as Thailand [7], Latin American countries [8], Africa [9], and counties in the US [10].

EKC proposed an inverted U-shaped relationship between economic growth denoted by income and environmental pollution as captured by CO2 emission. The EKC purports that as economic development makes its way, environmental pollution will increase due to higher production in the manufacturing, energy, and agriculture sector. After reaching a certain point, the relationship reverses as industries embrace renewable energy and more sustainable production mechanism. The efficacy of EKC is tested in various studies (*inter alia* [11–14]) and results infer the existence of EKC. Farhani and Ozturk [15], however, found a positive monotonic association between real GDP and CO2 emission which negates the existence of EKC. Shahbaz et al. [14] find mixed results where certain African countries like Tunisia, Zambia follows the EKC hypothesis whilst others such as Sudan and Tanzania experienced a *U*-shaped relationship between per capita CO2 and GDP.

Based on the previous literature, studies on the impact of income inequality on environmental pollution can be divided into three categories. The first group of studies found that income inequality lowers environmental quality, whilst the second group found evidence that income inequality improves environmental qualities. The third category argues that both positive and negative effects exists, such that the results are inconclusive. Differences may be due to the use of various data sets, econometric methods, or indices of income inequality, the results are mixed. Based on data from Turkey from 1984 to 2014, Uzar and Eyuboglu [16] demonstrate that income inequality has a positive impact on CO2 emissions and that the EKC is applicable in Turkey. The same conclusion is drawn by Baek and Gweisah [17] and Kasuga and Takaya [18]. In a sample of 217 countries, Wan et al. [19] found that the relationship between income inequality and CO2 emissions is negative in high-income economies vis-à-vis the middle-high-income, middle-low-income, and low-income economies. Demir et al. [20] and Khan et al. [11] echoed the same conclusion. On the other hand, Uddin et al. [21], found that in the case of G7, the effect of income inequality on CO2 emissions was significantly positive for the years 1870–1880 but significantly negative for the years 1950–2000. According to Belaïd et al. [22], who conducted a cross-sectional analysis of 11 Mediterranean nations, there is a long-term, significant and negative relationship between income inequality and per capita carbon emissions. This relationship suggests that greater inequality may prevent environmental degradation. Results, however, indicate that there is a short-term, positive, and significant correlation between income disparity and CO2 emissions.

Government expenditures are often viewed as a means to partly remedy the problems of inequality and environmental pollution. Government environment protection expenditure, for example, is a vital tool to ensure environmental quality (inter alia [23, 24]). The effect of government environment expenditures and environmental policies may be direct and indirect. Lopez et al. (2011) identified four main channels through which government expenditures may affect levels of pollution which are (i) the need for economic growth expands production which pressures the environment, (ii) human-intensive production harms the environment more vis-à-vis capital-intensive production, (iii) better use technology improves the technique of production, hence, causing less harm to the environment and (iv) higher income and better awareness of the environment raise the demand for better environmental quality and sustainable production. Empirical results are mixed with evidence of larger government expenditure lowering pollution (for example [25, 26]) and some showing higher pollution (for example [27, 28]). Grossman and Krueger [29] argue that differences in results may be due to countries being at different points of the EKC. However, it should be noted that the majority of earlier studies use total government expenditure as a proxy which is for other uses and not specifically for environmental protection. More data on environmental protection expenditure would enable more specific analysis. Existing studies do not account for the interactive effect of government expenditures and income inequality which could be a possible explanation of the indirect effect of government environment expenditure and pollution. This gap is addressed in this study.
