Assessment of extreme temperature to fiscal pressure in China

Abstract

This paper investigates the impact of climate change on government fiscal pressure using local governments’ fiscal data in China from 2000 to 2020. While previous studies have extensively explored the effects of climate change on individuals and economies, there has been limited research on the negative effects of climate change from a government fiscal perspective. Our study makes contributions by using county-level fiscal data in China, allowing for a detailed examination of the fiscal implications of weather extremes. Moreover, we comprehensively analyze the underlying mechanisms involving population mobility, industrial structure, and electricity consumption. The empirical results indicate that each additional day of extreme temperature in a year leads to a CNY 0.002 billion increase in the general public budget deficit, which is equivalent to 0.1093% of the local fiscal deficit. Furthermore, local governments heavily reliant on agriculture, experiencing low electricity consumption, and significant population outflows face even greater challenges. Notably, medical insurance and the “province-managing-county” reform program emerge as crucial mitigating factors against fiscal pressures. By providing a thorough assessment of climate change’s fiscal impact on local governments, this research contributes to the theoretical foundation for governmental initiatives aimed at reducing carbon emissions.