Low-carbon transition policies, skill-driven inequality, and endogenous political cleavages

Drawing on the political science literature, we develop a heterogeneous agent macrodynamic model in which voting preferences are structured along two political dimensions, the economic distributive and the sociocultural, with a particular focus on climate change policy. The model allows for the emergence of four distinct political coalitions defined by different combinations of redistributive preferences and sociocultural orientations, each associated with specific tax policies on the skill wage premium and on carbon emissions. Human capital accumulation generates wage differentials that affect production and feed back into inequality, while emission taxation shapes the direction of technical change by influencing incentives for developing carbon-neutral production technologies. We study analytically and through numerical simulations the conditions under which multiple stable equilibria can coexist and examine their implications for carbon emissions. We show that when income inequality, captured by the skill premium, is the primary motivation for educational investment, coalitions favouring redistribution may generate higher inequality than those opposing it. Our results further indicate that political agreement on carbon taxation is only a first step, as absolute decoupling of emissions from output requires a sufficiently strong technological response toward carbon-neutral techniques. Accounting for the regressive effects of carbon taxation on inequality gives rise to endogenous and persistent political cycles. Finally, the model highlights that the sociocultural dimension is most salient at intermediate levels of inequality, while redistributive concerns dominate when inequality is very high, contributing to a weakening of the link between education and support for left-wing economic policies.