<p>The increasing global frequency of climate-induced extreme weather events, such as droughts and floods, adversely affects both economic and social progress. Existing studies focus on climate change’s impacts on various economic sectors, but few explore resulting inequalities as well as the role of governments from fiscal perspectives. This paper studies the impact of climate change and fiscal decentralization on income inequality for a panel dataset of 63 provinces in Vietnam over the period 2006–2021. Results demonstrate that climate change, measured by both proxies of deaths and economic losses, increases income inequality. Remarkably, the impact of fiscal decentralization depends on its tools: tax decentralization exacerbates income inequality, while expenditure decentralization lessens it. However, the inequality-increasing impact of tax decentralization is smaller than the inequality-decreasing impact of expenditure decentralization. Specifically, fiscal decentralization plays a conflicting role in moderating the effect of climate change on income disparities: tax decentralization amplifies the inequality-increasing effect of climate change, while expenditure decentralization diminishes it. Findings imply the important role of fiscal decentralization, especially expenditure decentralization, in not only reducing income disparities, but also moderating the impact of climate change on income disparities in the context of an emerging economy.</p>