Abstract:
This paper examines the effects of climate change on income inequality in the United
States. Computing impulse response functions (IRFs) from the local projections’ method, we empirically
show that there is an immediate temporary positive response in income inequality from
rising temperatures within the first year. We also observe differences in the effects of temperature
growth on inequality across different classifications, mainly states with high inequality and low
temperature growth are more susceptible to changes in temperature growth than states with already
high temperature growth and high inequality growth. States with low inequality growth exhibit
similar positive effects on income inequality across low- and high-temperature-growth classifications.
We find that the initial positive effect on income inequality is not permanent. However, if the effects
of rising temperatures are unabated in the earlier periods, income inequality starts to rise in the
later periods. Our results highlight an important pathway, that climate change can negatively affect
sustainable development through increased income inequality.
