Inequality effects of climate concern: Evidence from U.S. income and financial data

• Climate concern shocks reduce disposable income inequality in the U.S. • Top 10% see the largest losses in capital income (dividends and rents). • Low-wage workers experience the strongest labor income declines. • The middle 40% remain relatively resilient across income sources. • Shifts in climate attention transmit through asset prices and capital flows. This paper examines how shocks to climate concern, defined as sudden increases in public attention to climate risks, are associated with changes in income inequality through financial channels in the United States. We use a monthly Proxy-SVAR model, instrumenting the Climate Concern Index (CCI) with extreme temperature anomalies, and combine it with high-frequency income data. The estimated responses indicate a decline in inequality following the climate concern shock, with the dynamics being consistent with a disproportionate contraction of capital income at the top 10%. Dividends and rental income fall, disproportionately affecting households at the top, while certain green assets appreciate, reflecting a sectoral reallocation within capital portfolios. Labor income losses appear to be concentrated among the bottom 50%, but redistribution and capital channels partly offset these effects. Middle-income households experience relative gains, highlighting the heterogeneous impacts across the income distribution. Overall, the evidence suggests that disposable income inequality tends to decline. These findings are consistent with a novel financial transmission mechanism: shifts in climate attention can affect capital income flows and asset prices, influencing the distribution of resources even in the absence of physical climate events. Importantly, the estimated responses should be interpreted as conditional dynamic responses under the maintained identifying assumptions. These distributional patterns differ from those of physical climate shocks, emphasizing the importance of distinguishing between concern-driven and direct climate shocks. By linking climate sentiment to financial dynamics and distributional outcomes, the paper contributes to the understanding of the channels through which climate awareness may shape economic conditions.