Weather Shocks and Income Inequality

doi:10.21203/rs.3.rs-2761180/v1

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Weather Shocks and Income Inequality

https://doi.org/10.21203/rs.3.rs-2761180/v1

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Climate change is predicted to increase both the frequency and the severity of weather shocks that adversely affect the livelihood of humans, especially those working in agriculture. We study the impact of weather shocks on welfare and how it exacerbates household income inequality. We first recognise the limitations of existing measures of weather shocks and propose an absolute measure that is more robust to the length of time over which weather samples are obtained. Next, we study the impact of the newly constructed weather shocks on welfare measured by different income sources and different types of consumption. The findings suggest that weather shocks reduce crop revenue significantly. We then consider how the diverse impact of weather shocks affects household income inequality. The Gini decomposition of income sources suggests crop income reduces income inequality in rural areas. Overall, weather shocks reduce income from crops and therefore they increase income inequality.

JEL Classification: D63, O13, O18

Weather Shocks

Income Inequality

Fixed Effects

Gini Decomposition

Acknowledgement

We thank Trung Thanh Nguyen, Manh Hung Do and Florian Heinrichs for granting access to the TVSEP data and assisting in understanding the dataset. We also thank Prasada Rao, Trong Anh Trinh, Kim Huong Nguyen, Dao Nguyen, and David Rowland for their helpful suggestions and valuable advice. The views expressed in this article are the personal views of the authors and may not be understood or quoted as being made on behalf of or reflecting the position of the organisations with which the authors are affiliated.

Funding

The paper is a part of the PhD study of the first author. The PhD program was funded by the University of Queensland, Australia [University of Queensland Research Training Stipend, University of Queensland Research Training Tuition Fee Offset, and Research Higher Degree Top Up Scholarship].

Declaration of Competing Interest

Thi Thao Nguyen and Son Nghiem declare no conflict of interest.

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Weather Shocks and Income Inequality

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