The Healthcare 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 healthcare cost of PM_2.5 for a developing country. We leverage spatial spillovers of PM_2.5 from long-range transport to generate exogenous variation in local pollution and employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. We find significant impacts of PM_2.5 on healthcare spending in both the short and medium terms. A 10 $μg/m3$ decrease in PM_2.5 would reduce annual healthcare spending by over $9.2 billion, about 1.5% of China's annual healthcare expenditure.