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School of Economics and Finance

No. 966: The distributional effects of climate change. An empirical analysis

Haroon Mumtaz , Queen Mary University
Angeliki Theophilopoulou , Brunel University London

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Abstract

The role of climate change on output has been studied extensively in the empirical literature. However, its distributional implications have received little attention. This paper attempts to fill this gap by investigating if climate shocks affect income inequality. Using a Vector Autoregression for a large cross-country panel, we identify the climate shock in the frequency domain as the shock that explains the bulk
of the variance of climate variables in the long-run. An adverse climate shock is associated with an increase in measures of income inequality, affecting mostly low income households. The impact of the shock is larger in magnitude for low income, hot countries with a significant agricultural sector and low degree of adaptation to climate change.

J.E.L classification codes: C32, E32, Q54

Keywords:Climate shock; income inequality; economic growth; frequency domain identification; panel VAR.

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