Climate Change and Socio-economic inequality in the US

In this paper, we study the effects of climate change on income inequality in the United States. To do so, we characterize climate change in the US and introduce the climate-inequality vector autoregression (VAR). Constructing a data set of daily temperatures for the contiguous US from 1920–2019, we document that climate change is more than a phenomenon that increases mean temperatures since the whole temperature distribution has shifted asymmetrically, with temperatures in lower percentiles increasing at a faster rate than those in higher percentiles for most US states. Using the climate-inequality VAR, we estimate the effects of climate change on income inequality by identifying shocks to temperature distribution characteristics (such as mean and percentiles) via a combination of zero and sign restrictions. We find that the effects of climate change on income inequality not only vary across temperature distribution characteristics but also vary widely across US states. We find both negative and positive impacts on within-state inequality across the US. There is no strong link between a state’s climate or per capita income and the within-state effects on income inequality once we consider effects due to changes across the several temperature percentiles.