Does a more unequal society emit more CO2? The nexus between carbon emissions and income inequality has been at the core of a vast literature yielding conflicting results. Here, we provide robust evidence of a non-linear relationship that depends on the structural composition of the economy. Specifically, we document a positive association between income inequality—measured using five different indicators, for both pre-tax and post-tax income—and per capita carbon emissions in highly tertiarized countries. By contrast, this relationship turns negative in non-service-intensive economies. We provide evidence for plausible mechanisms mediating this non-linear association. In particular, the investment carbon footprint of the top 1% and the size of the manufacturing sector emerge as key dimensions underlying the observed patterns. Our results point to the structural composition of the economy as a crucial factor shaping the emission-inequality nexus. As such, economic structure helps identify phases of development in which reducing inequality comes with climate-related benefits.
Increased access to finance is widely viewed as a key driver to increase adaptive capacity in response to climate change. However, apart from limited studies on borrowing behavior, little is known about how exposure to extreme heat is associated with microfinance clients’ financial behavior. This study addresses this gap by investigating the short-run associations of unusual heat with microfinance clients’ saving and withdrawal behavior. In a case study, it combines geo-located temperature data with a unique dataset of around 50,000 clients of a leading Microfinance Institution (MFI) in Benin. Applying two-way fixed effects, seemingly unrelated regression, and ordinary least squares models, the study finds that exposure to extreme heat is heterogeneously associated with microfinance clients’ financial behavior. Specifically, non-agricultural clients show suggestive evidence of the accumulation of precautionary savings after extreme heat days in the preceding quarter, while extreme heat days are negatively associated with agricultural clients’ savings. Microfinance clients increase their withdrawals when exposed to extreme heat within the preceding quarter, but the association is not robust for agricultural clients’ withdrawals in response to an increase in annual extreme heat days. Addressing the heterogeneous financial responses across different clients to extreme heat consequently requires explicit policy attention. Our findings contribute to a better understanding of the associations between extreme heat and individual economic outcomes, how financial behavior relates to weather risk, and how microfinance clients respond to shocks.
