Climate Change and Long-Run Factor Shares

Tianzi Liu, Ivan Rudik and Zebang Xu

AEA Papers and Proceedings, 2026, vol. 116, 510-516

Abstract: What is the long-run effect of climate change on how income is distributed between capital and labor? To answer this question, we develop an equilibrium growth model with labor- and capital-augmenting productivities that are affected by changes in temperature. We show that how temperature affects the long-run division of income only depends on the elasticity of substitution between labor and capital and how temperature affects capital-augmenting productivity. Labor-augmenting productivity and the elasticity of labor supply play no role in temperature's long-run effects on factor shares.

JEL-codes: E24 E26 O44 Q54 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/pandp.20261025

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