Climate change and rural income inequality: Evidence from China

Climate change has a profound impact on economy. However, limited research has explored whether it exacerbates rural income inequality within countries. To fill this gap, this paper utilizes a dataset from National Rural Fixed Point Survey in China to investigate the impact of climate change, particularly extreme high temperatures, on rural income inequality, and also explores the underlying mechanisms. The findings indicate that climate change contributes to widening income disparities among farmers. Specifically, an increase of one standard deviation (0.05 °C) in the daily extreme accumulated temperature (EDD) leads to a 4 % to 10 % widening of income gap. Mechanism analysis indicates that the disproportionately high reliance on agricultural income among low-income farmers is a significant factor contributing to the widening income gap. Additionally, disparities in adaptive behaviors among households play a crucial role. Low-income farmers within the agricultural sector face constraints in adaptation due to limited technical skills and financial restrictions. Meanwhile, rural labor migration outside the agricultural sector also contributes to worsening income inequality. Policy analysis suggests that targeted interventions—such as promoting agricultural technology, investing in agricultural infrastructure, and implementing agricultural subsidies—enhance households' ability to cope with climate change, and ultimately reduce the income gap.