The Impact of Ambient Fine Particulate Matter on Consumer Expenditures

Abstract

Airborne particulate matter suspended from industrial facilities, power plants, and automobiles is detrimental to health. Growing concerns about the increasing level of airborne particulate matter have led many industrialized nations to advocate for the transformation of the energy market and investment in sustainable energy products. At the other end, consumers have made individual adjustments and attempted to reduce the exposure to the particulate matter. In this paper, we focus on the effect of ambient air pollution on consumer expenditures based on scanner panel data on consumers’ debit and credit card transactions. A series of empirical analyses found robust evidence that the increased level of particulate matter led to considerable disruption in total consumer expenditures with significant heterogeneity across categories. Our findings suggest that consumers alter their spending behaviors in an attempt to reduce the risk of exposures to particulate matter. Such an estimated effect of air pollution is qualitatively different from those of other macroeconomic factors and provides important guidance for policy interventions and practical decisions aimed at sustaining economic growth.