Economic Growth, Income Distribution, and Climate Change

We present a model based on Keynesian aggregate demand and labor productivity growth to study how climate damage affects the long-run evolution of the economy. Climate change induced by greenhouse gas lowers profitability, reducing investment and cutting output in the short and long runs. Short-run employment falls due to deficient demand. In the long run productivity growth is slower, lowering potential income levels. Climate policy can increase incomes and employment in the short and long runs while a continuation of business-as-usual leads to a dystopian income distribution with affluence for few and high levels of unemployment for the rest.