The Health Care Cost of Air Pollution: Evidence from the World’s Largest Payment Network

This paper exploits the universe of credit- and debit-card transactions in China during 2013–2015 and provides the first nationwide analysis of the health care cost of PM2.5 for a developing country. We leverage spatial spillovers of PM2.5 from long-range transport to generate exogenous variation in local pollution, and we employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. We find significant impacts of PM2.5 on health care spending in both the short and medium terms. A 10 g/m decrease in PM2.5 would reduce annual health care spending by over $9.2 billion, about 1.5% of China’s annual health care expenditure.