Money and the air : the impact of income, preferences, and regulation on particulate matter pollution
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- Master Thesis 
In this thesis we investigate the impact of preferences, income and regulation on PM2.5 levels. The thesis uses a combined data set of income, population weighted concentration levels of PM2.5 for 157 countries from 1990 to 2017. Using a fixed effects model, we find evidence for an inverted U-shaped relationship between income and pollution, supporting the hypothesis of an Environmental Kuznet Curve for PM2.5. Furthermore, the curve has changed in recent time and pollution is more sensitive to income in from 2011 to 2017 than for the period as a whole. The estimated turning points are $6,015 for the full period and $2,860 for 2011-2017. Income is not found to have different effects on PM2.5 pollution in developed and developing countries. Assuming preferences to be constant, we find relationships between patience, negative reciprocity, risk taking and PM2.5 pollution. Greater levels of patience are seen with lower levels of estimated time invariant PM2.5 pollution, while higher levels of negative reciprocity and risk taking are seen with lower levels of PM2.5. Negative reciprocity also seems to have an effect on the relationship between income and pollution. Countries with higher levels of negative reciprocity have a different estimated EKC and reaches the turning point faster ($4,620) than countries with lower levels ($12,094). Though the results indicate preferences and income to have effects on PM2.5 pollution, the analysis does not propose causality. Using a difference-in-difference approach, we analyse how regulations and policy can have an effect through the EU’ Directive 50/2008. The isolated effect of the directive is estimated to be a reduction in PM2.5 levels of 6 %. This effect is robust to inclusions of EKC-relationships in the estimation.