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

Panle Jia Barwick, Shanjun Li, Deyu Rao, and Nahim Bin Zahur

The Review of Economics and Statistics 2026; 108 (1): 110–128.

Abstract

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 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 we employ a flexible distributed lag model to capture semiparametrically the dynamic response of pollution exposure. We find significant impacts of PM_2.5 on health care spending in both the short and medium terms. A 10 μg/m³ decrease in PM_2.5 would reduce annual health care spending by over $9.2 billion, about 1.5% of China’s annual health care expenditure.

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