Is there an environmental Kuznets curve for Spain? Fresh evidence from old data

The information content of the environmental Kuznets curve (EKC) is subject to change over time and all the empirical modeling work that does not take into account the possible variations and instabilities may fail to explain the variations in the per-capita CO2 and per-capita income relationship. In this paper we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a better empirical description of the Spanish EKC during the period 1857-2007. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as on cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). Overall, the results of Kejriwal-Perron tests suggest a model with two breaks estimated at 1941 and 1967 and three regimes. The coefficient estimated between per-capita CO2 and per-capita income (or long-run elasticity) in a two-break model shows a tendency to decrease over time. Therefore, even if per-capita CO2 consumption is monotonically rising in income, the “income elasticity” is less than one. This implies that even if the shape of the EKC does not follow an inverted U, it shows a decreasing growth path pointing to a prospective turning point.

► We use a long span data base to test for the EKC for the Spanish economy. ► We use recent cointegrated tests allowing for multiple structural changes. ► The results show linear cointegration with two breaks in 1941 and 1967. ► The long-run elasticity between CO2 and income seems to decrease overtime.