Climate Shocks and Income Inequality: Some first econometric results from the CROSSEU project

This paper combines percentile-level household income data from the World Bank’s Poverty and Inequality Platform with high-resolution ERA5 climate indicators to econometrically estimate the distributional effects of frequency- and intensity-adjusted measures of heatwaves, coldwaves, droughts, and extreme precipitation across more than 140 countries. Our findings show that extreme weather events are regressive: heatwaves, coldwaves, and droughts depress incomes at the lower end of the distribution by substantially more than at the upper end, leading to higher Gini coefficients and wider 90/10 income gaps. These effects vary markedly across countries, with substantially larger distributional impacts in arid and temperate climates and in economies with greater agricultural dependence and lower adaptive capacity. Taken together, our results suggest that extreme weather events are associated with substantial and uneven distributional consequences that can systematically widen income disparities within countries. This underscores the importance of climate adaptation and social protection policies that explicitly account for distributional impacts, particularly in economies and regions characterised by high exposure and vulnerability.