Abstract

We study the impact of climate change on inequality dynamics in an overlapping generation model, where we consider the skill levels of labor and intergenerational wealth transfer. The model captures the dynamics of the increasing wealth inequality. We find that climate change reduces the total wealth created in the society while it increases the gap between the top-income and bottom-income groups. Furthermore, the poorest part of the society is affected more while the richest part is more adaptive to the impacts of climate change. We calibrate our model for a case of a developing country (Uganda) and show that under severe climate change projections, wealth inequality between the richest and the poorest groups can increase by up to 80% by the end of the century.