Income Inequality in the Face of Climate Change: An Empirical Investigation on Unequal Nations, Vulnerable Regions and India

Abstract

Abstract Climate change stands as the paramount challenge of our era, characterized by intricate and ever-evolving dynamics. While considerable attention has been dedicated to examining the impact of climate change on financial stability and economic productivity, there has been comparatively less emphasis placed on exploring the income inequality impacts of climate change. This paper provides a detailed empirical analysis of how climate change impacts income inequality in 43 countries most vulnerable to climate change, 39 most unequal countries in terms of income distribution and India separately, spanning the period from 1971 to 2021. The research utilizes different climate change datasets to check the effects of particular aspects of climate change and deploys a standard panel regression analysis followed by a series of robustness checks to confirm the soundness of the results, and autoregressive distributed lag bounds test approach to analyse the link for India. In general, our empirical analysis concludes that climate change, quantified by three different indices, has deleterious effects on income distribution in both the groups and in the short- and long-run for India, after controlling for conventional determinants of income inequality, in line with existing theory and related studies. This conclusion is robust with alternative estimation techniques and sets of control variables. JEL Codes: D31, O10, O15, Q54