Abnormal Weather and Household Consumption

Using data from the China Family Panel Studies (CFPS) from 2010 to 2022, I study the effect of abnormal weather on urban and rural household consumption. I find that abnormal high temperatures, low temperatures, drought, and rainfall significantly reduce household consumption expenditure and consumption rate. The impact of abnormal weather on household consumption shows significant heterogeneity across different groups. The impact of abnormal weather is more significant on rural households, households in northern regions, and households with unhealthy household heads. In addition, abnormal weather reduces consumption expenditure and the consumption rate by increasing income uncertainty, liquidity constraints, and risk expectations. Finally, in terms of consumption structure, abnormal weather significantly increases food and healthcare expenditure while significantly reducing clothing and entertainment expenditure.