Does inequality harm the climate? : an agent-based model with endogenous climate policy

This paper examines how income inequality affects environmental outcomes through the interplay of household consumption and political support for climate policy. We develop an agent-based model in which households differ by income, consumption patterns, and climate policy attitudes. Our results show that the relationship between inequality and emissions is dynamic and non-monotonic: relative to a baseline calibrated to the U.S., lower income inequality initially increases emissions due to rising consumption among formerly low-income households. Over time, however, reduced inequality fosters broader political support for tighter climate action, as a more equal income distribution lowers the relative cost of carbon taxation for households at the bottom of the distribution. This stronger support enables more ambitious policies and ultimately reduces emissions. Moreover, we find that lower inequality consistently produces the lowest cumulative emissions across scenarios. The findings highlight the importance of distributional considerations in designing effective and politically sustainable climate policies.