Climate shocks and wealth inequality in the UK: evidence from monthly data

Abstract

This paper investigates both the linear and nonlinear effects of climate risk shocks on wealth inequality in the UK using the local projections (LPs) method, based on high-frequency, i.e., monthly data. The linear results show that climate risk shocks lead to an increase in wealth inequality in the longer term. The nonlinear results present some evidence of heterogeneous responses of wealth inequality to climate risk variable shocks between high- and low-climate risk regimes. The findings highlight the disproportionate increased burden of climate change on households that are already experiencing poverty, particularly households in high-climate risk areas. As such, measures to mitigate the adverse effects of climate change need to be tailored so as not to overburden the poor.