Climate Change and Income Inequalities

ABSTRACT This paper examines the relation between climate change and income inequality, providing evidence that they are mutually interacting and reinforcing each other. The paper uses Three Stages Least Squares (3SLS) panel models for 167 countries for the period of 1990–2022 in order to account for the endogenous character of inequality (both within and between countries) and climate change (CO 2 emissions per capita) by estimating the direct and indirect effects of key market and policy drivers. The evidence suggests that environmental degradation increases inequality, as the low end of the income distribution is affected more and has limited capability to protect itself. It also suggests that inequality may affect environmental degradation in a non‐linear or conditional way, where the level of inequality and the level of development determine the direction of the impact.