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Quantitating the health effects of air pollution is important for understanding the benefits of environmental regulations. Using the China Urban Household Survey (UHS) Database, this paper estimated the effect of air pollution exposure on household healthcare expenditure. To address potential endogeneity concerns, we performed household healthcare expenditure regressions using an instrumental variables (IV) strategy based on spatial air pollution spillovers. Our research revealed that a 1% increase in yearly exposure to fine particulate matter (PM2.5) corresponds to a 2.942% (95% confidence interval: 1.084%, 4.799%) increase in household healthcare expenditure. The estimates suggest that the 13th Five-Year Plan for Ecological and Environmental Protection (the 13th FYP) would reduce annual national healthcare expenditure by 47.36 Billion Dollar (95% confidence interval: 17.45 Billion Dollar, 77.25 Billion Dollar), which accounts for 0.64% (95% confidence interval: 0.24%, 1.04%) of China's gross domestic product (GDP).
•We quantitated the effect of air pollution on healthcare expenditure.•1% increase of PM2.5 brings 2.942% increase in household healthcare expenditure.•Household with elderly people are more sensitive to air pollution.•The 13th FYP would reduce $47.36 Billion national healthcare expenditure annually.